
Class Hf y ^ ^^Q^o 
Book O O 



61ST Congress \ ct^xtat^tt (Document 

2d Session ] SENATE | No. 491 



NATIONAL MONETARY COMMISSION 



Clearing Houses 



BY 

JAMES GRAHAM CANNON 

Vice-President Fourth National Bank, New York City 



A 



Washington : Government Printing Office : 1910 



m 



// 



61ST Congress \ 
2d Session J 



SENATE 



Document 
No. 491 



NATIONAL MONETARY COMMISSION 



Clearing Houses 



BY 

JAMES GRAHAM CANNON 

Vice-President Fourth National Bank, New York City 






Washington : Government Printing Office : 1910 



^^ 



^' 



NATIONAL MONETARY COMMISSION. 



Nelson W 
Bdward B 

Jui,ius C. Burrows, Michigan. 

EuGENB Hale, Maine. 

Philander C. Knox, Pennsylvania. 

Theodore E. Burton, Ohio. 

John W. Daniel, Virginia. 

Henry M. Teller, Colorado. 

Hernando D. Money, Mississippi. 

Joseph W. Bailey, Texas. 



Aldrich, Rhode Island, Chairman. 
VrEELANd, New York, Vice-Chairman, 

Jesse Overstreet, Indiana, 

John W. Weeks, Massachusetts. 

Robert W. Bonynge, Colorado. 

Sylvester C. Smith, California. 

Lemuel P. Padgett, Tennessee. 

George E. Burgess, Texas. 

ArsenE p. Pujo, Louisiana. 

Arthur B. Shelton, Secretary. 



A. Piatt Andrew, Special Assistant to Commission. 



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1 1910 

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CONTENTS 



Page. 
Chapter I . — Classes of Clearing Houses i 

A clearing house defined — Clearing houses 
classified with respect to functions — Clear- 
ing houses classified with respect to the 
funds used in settlements. 
II. — ClEaring-House Terms 3 

How usages differ — The meaning of "to 
clear" — Clearings — Exchange and ex- 
changes — Bills and bills of exchange — 
Draft and check — Accounts balanced and 
balances in accounts — Collections — Items — 
Clearing matter — Settlements — Out-of-town 
checks and country checks. 
III. — Special Functions op a Clearing House 11 

Primary object — Extension of field — List of 
special functions — Action of clearing-house 
banks at outbreak of civil war — Mutual 
assistance of members — Fixing rates of in- 
terest on deposits — The practice in Sioux 
City — Establishing rates of exchange — 
Some Buffalo history — Rochester — Balti- 
more — Houston — Toledo — Topeka — St. 
Louis — West Superior — St. Joseph — Clear- 
ing-house loan certificates. 
IV. — Possible Developments of the Clearing- 
house System 24 

New functions to be exercised — Country 
checks — Transfer of currency from point to 
point — Possible use of gold certificates — 
Special examiners — Settlement of bal- 
ances — Advantages of the cash basis — 
Clearing-house depositories — ^The use of de- 
pository certificates. 
V. — The Administration of Clearing Houses 30 

List of officials — Duties of officers — Commit- 
tees — Annual meetings. 



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Page. 

Chapter VI. — Thk Sktti^Ement of Clearing-House; 

BaIvANCES 36 

Results accomplished by settlements — Ratio 
of balances to clearings — Settlements with 
money — Clearing-house settlements in Can- 
ada — Money in labeled packages — Objec- 
tions to silver — Methods of settling balances 
without money — Advantages of the man- 
ager's check over settlements in cash. 
VII. — Ci^EARiNG-HousE Exchanges 47 

Location of clearing houses — Arrangement of 
furniture — Hour of making exchanges — 
Clearing matter — Character of indorse- 
ments — Messengers and settling clerks — 
Conducting the exchanges — Determining 
balances — Two clearings a day. 
VIII. — Clearing Country Checks 58 

The growing use of checks — The difficulty of 
country checks — Remedies proposed — State 
and National clearing houses — The Kansas 
City, Mo., plan — The Atlanta, Ga., plan. 
IX. — Typical Journey of a Country Check Remit- 
ted FOR A City Account 64 

The small amount of work required of payer 
and .payee — The large amount of work re- 
quired of the bank in which the check is 
deposited and its correspondent — What the 
receiving bank does — What its regular cor- 
respondent in the city nearest the country 
bank is required to do — What the country 
bank has to do — An illustrative example. 
X. — ClEaring-House Loan Certificates 75 

What clearing-house loan certificates are — 
Origin — Interest rates — Uses — First issue in 
i860 — The issues of 1861, 1863, and 1864 — 
Action of various clearing houses in 1873 — 
New Orleans in 1879 — New York in 1884 — 
Action of the New York, Boston, and Phil- 
adelphia clearing-house associations in 
1890 — General resort to loan certificates in 
1893 — Emergency circulation in the South, 
Boston, and Philadelphia in 1895 — New 
Orleans in 1896 — Calculations of interest. 



Contents. 



Page. 

Chapter XI. — Clearing-House Loan Certificates op the 

Panic of 1907 117 

Causes of panic — Action of the New York 
clearing house — Chicago clearing house — 
Boston clearing house — Philadelphia clear- 
ing house — Clearing-house checks issued at 
Canton, Ohio — At Cincinnati and Cleve- 
land — Certificates at Fargo, N. Dak., and 
Los Angeles — Plan of group 2, Ohio Bankers' 
Association — Total of certificates issued. 
XII. — Clearing-House Bank Examiners 137 

General remarks — Examiner appointed at 
Chicago in 1906 — Minneapolis and St. 
Paul — St. Louis — Los Angeles — Kansas City 
and St. Joseph — Philadelphia — Details of 
proposed group plan of the California Bank- 
ers' Association. 
XIII. — The New York Clearing House 148 

Origin and early history — Formal organization 
in 1853 — First location — New York clearing- 
house building company — Cedar street prop- 
erty — Constitutional provisions — Commit- 
tees — Statistics of membership — Clearing for 
nonmembers — Statements of condition — 
Capitalization of New York banks — Records 
of clearing house. 
XIV. — Daily Routine op the New York Clearing 

House 190 

The clearing room — Clerks and messengers — 
The manager's part — How the exchanges are 
made — The cash balance paid in — ^The dis- 
bursements — Clearing-house gold deposi- 
tory — Restrictive indorsements — Pro rating 
of expenses — Record of fines — Table of 
annual clearings — Table of average daily 
balances. 
XV. — The Clearing House Association op the 

Banks op Philadelphia 223 

Early history — Runners' exchange — The 
morning exchange — Gold depository — Clear- 
ing-house due bills — Settlements without the 
use of money — Comparison of bank state- 
ments — Collateral security — Assessments of 
expenses — Admission of new members — 
Plan of administration — List of presidents — 
Failures and resulting litigation. 



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Page. 

Chapter XVI. — The Boston Clearing House 240 

Formation and early history — Period of the 
civil war — Settlement of balances — Borrow- 
ing and loaning balances— Clearing for out- 
side banks. 
XVII. — Foreign Department of the Boston Clearing 

House 259 

Organization and history — Regulations — ^Two 
clearing hours — Blanks and forms — Fines — 
Bookkeeping. 
XVIII. — The Chicago Clearing House 276 

Date and history of formation — Methods of 
exchange — Preliminary exchanges among 
members — Kinds of money employed in 
settling balances — ^Trading balances — Non 
member banks that clear — Statements of 
condition — Expenses and fines — Admissions 
and expulsions — Volume of clearings — Ad- 
ministration. 
XIX. — The St. Louis Clearing House 298 

Early history — Scope of membership — Plan of 
administration — Management of clearings — 
Records kept by the manager. 



VI 



Contents. 



ILLUSTRATIONS. 



Page. 
Form of receipt used by Buffalo clearing house given by creditor 

banks on receipt of balances 40 

Form of receipt given by Buffalo clearing house to debtor banks on 

payment of balances 42 

Facsimile of the check the journey of which is shown on the map on 

page 71 69 

Map showing the check's itinerary 71 

Facsimile of the back of the check, showing the numerous indorse- 
ments it bore on finally reaching the bank on which it was 

drawn 73 

Form of clearing-house loan certificate used by New York clearing 
house in 1873; later issues differ from this only in the omission of 

the restrictive date 84 

Form of clearing-house loan certificate used in Philadelphia 87 

Form of clearing-house loan certificate used in Boston 97 

Form of clearing-house loan certificate used in Baltimore 99 

Form of clearing-house loan certificate used in New Orleans 102 

Form of clearing-house loan certificate used in Cincinnati 104 

Form of clearing-house loan certificate used in Detroit 106 

Form of clearing-house loan certificate used in Atlanta, Ga 108 

Form of clearing-house loan certificate used in Birmingham, Ala 1 1 1 

Form of clearing-house check used in Chicago 120 

Form of clearing-house check used at Canton 126 

Form of clearing-house certificate used at Fargo, N. Dak 128 

Form of check issued by Group 2, Ohio Bankers' Association 130 

Resolution authorizing exchanges through a member bank 172 

Application to clear for another bank 173 

Consent to clear for another bank 174 

Form of statement of weekly averages of nonmember banks 175 

Form of statement of weekly averages for trust companies 176 

Form of statement required by the New York Clearing House 

Association of Trust Companies 180 

Form used at clearing house in tabulating national bank state- 
ments 181 

Form used at clearing house in tabulating state bank statements 182 

Skeleton of weekly statement of the associated banks of the city of 

New York 183 



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Page. 

Form of statement required of associated banks 184 

Form of summary of weekly statement of associated banks Face 1 84 

Skeleton of weekly statement of nonmember banks Face 1 84 

Facsimile of "small ticket" deposited by messenger with settling 

clerk 193 

Form of "first" or credit ticket 194 

Form of settling clerk's receipts 196 

Form of settling clerk's statement 197 

Form of "second" ticket 199 

Clearing-house proof sheet 201 

Form of settling clerk's report to his bank of daily balances 203 

Manager's receipt 205 

Form of gold certificate (face) 206 

Form of gold certificate (back) 207 

Clearings for fifty-five years at New York 217 

Balances paid in cash for fifty-five years at New York 221 

Form of clearing-house due bill 226 

Form of weekly statement required of Philadelphia banks 228 

Form of daily statement employed by the banks of Philadelphia 230 

Form of statement of the average condition of Philadelphia 

banks Face 230 

Form of ticket used by Boston banks in connection with payment of 

debit balances 246 

Form of manager's receipt for debit balances, Boston 248 

Form in use in Boston for transfer of balances 250 

Statement of weekly averages of the associated banks of Bos- 
ton Face 252 

Form of average weekly return in use by the associated banks of 

Boston 253 

Form of receipt for pro rata charge on account of uncollected checks, 

Boston 264 

Foreign slip and check ticket, Boston clearing house 266 

Form of receipt, foreign department, Boston clearing house 268 

Exchange ticket, foreign department, Boston clearing house 270 

Form of letter of transmission to correspondents, Boston 272 

Form of settling sheet, foreign department, Boston clearing house 275 

Forms of reports used in trading balances, Chicago 283 

Form of order used in transferring balances that have been loaned, 

Chicago 287 

Form of order on clearing-house manager for balance due Chicago. _ 293 

Facsimile of debit list used in St. Louis clearing house 303 

Form used for listing balances in St. Louis clearing house 305 

Form of manager's report of clearings, balances, etc., St. Louis 307 



CLEARING HOUSES. 



Chapter I. 
CLASSES OF CLEARING HOUSES. 

A CLEARING HOUSE DEFINED — CLEARING HOUSES CI.ASSI- 
FIED WITH RESPECT TO FUNCTIONS — CLEARING HOUSES 
CLASSIFIED WITH RESPECT TO THE FUNDS USED IN SET- 
TLEMENTS. 

What is a clearing house? The supreme court of the 
State of Pennsylvania has defined it thus : 

It is an ingenious device to simplify and facilitate the work of the banks 
in reaching an adjustment and payment of the daily balances due to and 
from each other at one time and in one place on each day. In practical 
operation it is a place where all the representatives of the banks in a given 
city meet, and, under the supervision of a competent committee or officer 
selected by the associated banks, settle their accounts with each other and 
make or receive payment of balances and so "clear" the transactions of 
the day for which the settlement is made. 

But we must go farther than this, for though originally 
designed as a labor-saving device, the clearing house has 
expanded far beyond those limits, until it has become a 
medium for united action among the banks in ways that 
did not exist even in the imagination of those who were 
instrumental in its inception. A clearing house, therefore, 
may be defined as a device to simplify and facilitate the 
daily exchanges of items and settlements of balances 
among the banks and a medium for united action upon 
all questions affecting their mutual welfare. 



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The clearing houses in the United States may be di- 
vided into two classes, the sole function of the first of which 
consists in clearing notes, drafts, checks, bills of exchange, 
and whatever else may be agreed upon, and the second 
of which, in addition to exercising the functions of the 
class just mentioned, prescribes rules and regulations for 
the control of its members in various matters, such as the 
fixing of uniform rates of exchange, interest charges, col- 
lections, etc. 

Clearing houses may also be divided into two classes 
with reference to the funds used in the settlement of 
balances: First, those clearing houses which make their 
settlements entirely on a cash basis, or, as stated in the 
decision of the supreme court above referred to, *'by 
such form of acknowledgment or certificate as the associ- 
ated banks may agree to use in their dealings with each 
other as the equivalent or representative of cash;" and 
second, those clearing houses which make their settle- 
ments by checks or drafts on large financial centers. 



Chapter II. 
CLEARING-HOUSE TERMS. 

HOW USAGES DIFFER — THE MEANING OF "TO CIvEAR " — 
CLEARINGS — EXCHANGE AND EXCHANGES — BIIvI^S AND 
BII.I.S OF EXCHANGE — DRAFT AND CHECK — ACCOUNTS 
BAI.ANCED AND BAI^ANCES IN ACCOUNTS — COI^IvECTlONS — 
ITEMS — CI.EARING MATTER — SETTI^EMENTS — OUT-OF- 
TOWN CHECKS AND COUNTRY CHECKS. 

Every profession and every line of business, as well as 
every trade, develops its own peculiar terms and phrases. 
Those who become familiar with the routine of the business 
or the profession use these terms among themselves with 
a degree of precision and certainty of meaning which 
sometimes is difficult for one outside of the group to 
comprehend. The usage in this regard by banks and 
clearing houses is no exception to the general rule. 

Terms which are current in one part of the country 
or in one financial center do not always obtain in others, 
and to a certain extent different terms are sometimes 
employed in different parts of the country for indicating 
approximately the same things. For these reasons, and 
others which the reader will readily apprehend, a brief 
consideration of a few of the prominent terms employed 
in clearing-house affairs is appropriate by way of intro- 
duction to the more important chapters which follow. 



National Monetary Commission 

Nothing like a complete list is attempted, and instead 
of presenting the definitions in conventional dictionary 
fashion, the meaning of certain terms and the special uses 
to which they are applied are laid before the reader in 
a far less formal manner. 

The term "clearing house" is defined at some length 
in another part of this volume, from the standpoints of 
use and function. The word is also used in the sense of 
location or place. A clearing house may be described 
as an office, established by the banks of a city, where 
their representatives meet daily to exchange drafts and 
checks and adjust balances. 

The term ''to clear" is popularly defined "to pass 
through the clearing house." Another definition is, "to 
settle accounts by exchange of bills and checks, as is 
done in the clearing house." To clear a check means to 
pass it from the bank that holds it as a deposit or for 
collection to the bank on which it is drawn, and to receive 
payment therefor; but, with the complexities of modern 
business, a single check is seldom cleared. Instead a 
multitude of checks and other items are included in each 
clearing. The term "to clear" therefore takes on a 
broader meaning, and the only adequate conception of 
it is afforded by a view of the actual operations of a 
clearing house, which are set forth in another part of this 
volume. 

The word "clearing" designates the settlement of 
balances between banks, arising from the interchange of 
checks, drafts, etc., carried on at the clearing house. The 
term "clearings" signifies the total of differences bal- 



Clearing-House Methods 

anced at a clearing house. Occasionally the words 
"clearance" and "clearances," which, properly employed, 
designate space or distance, are used in the place of 
"clearing" and "clearings." Their employment in the 
place of the latter is not justified by general usage nor by 
the real meaning of these forms of the word. 

The term "exchange," so common in financial and 
business transactions, has various shades of meaning, 
ranging from a charge for the transfer of money from 
one point to another, to the place where business inter- 
ests of a special class are brought together and where 
contracts concerning them are made. The word liter- 
ally means the act of giving one thing as an equivalent 
for another, or for interchanging two equivalents. From 
this it comes that the word indicates that which is given 
or received by an arrangement for mutual interchange, 
and hence the term " exchanges," frequently employed by 
those who have transactions with the clearing house, to 
indicate the items that are to be exchanged, as, for 
example, in the phrase: "The amount of exchanges." 

The term "bill" has several different meanings, rang- 
ing from a statement of an account, or of money due, to 
a bank note or government note. Occasionally, in loose 
usage, it means a promissory note. In Great Britain the 
term is frequently used to mean a bill of exchange. As 
used in connection with clearing-house affairs in this 
country, it usually designates bank notes or government 
notes. 

A "bill of exchange" is a written order or request 
from one person to another, for the payment of money 



National Monetary Commission 

to a third, the amount to be charged to the drawer of 
the bill. This term, therefore, while having a special 
meaning in some cases, often includes drafts which are 
drawn by merchants upon their customers in ordinary 
course and put through bank for collection. The term 
in this sense, however, is less commonly employed than 
''draft." 

A "draft" may be described as an order drawn by one 
party on another for the payment of money to a third. 
It is for the most part limited to an order payable at, or 
collectable through, a bank or other financial agency. A 
draft made payable at some time other than at sight, 
and which has been accepted by the party upon whom it 
is drawn, is known as an "acceptance," and is treated 
by banks and clearing houses the same as a note. 

A "check" is an order in writing upon a bank or 
banker for the payment of a designated amount of money 
to some designated person or order. Checks vary in 
form. Those which are current between banks and 
bankers — as, for example,, the checks that would be used 
by a country bank in drawing against the balance lodged 
with its New York correspondent — frequently take the 
form that commonly obtains with drafts. Hence the 
term "bank draft" or "banker's draft," often employed 
by those who purchase New York or other exchange of 
their local banks to designate the character of their 
remittance. 

A "center" is described as, in the dictionaries, the 
place about which things cluster, or to which they con- 
verge. It is also described as the point of emanation 



Clearing-House Methods 

or radiation. With this definition before us, it is easy 
to perceive what is meant by a "money center" or a 
"financial center." 

The term "balance" has two distinct meanings, and 
the word is used among bankers and business men in a 
way to indicate two things entirely different from each 
other. In its simplest form a balance may be declared 
to be an equality between the credit and debit totals of 
an account. But it is also used to refer to the difference 
between such totals, or, in other words, the excess on 
one side or the other. Thus in the first sense we declare 
that an accoimt is balanced when it has been closed by 
securing an equality of the two sides. In the second 
sense, when we speak of the balance in an account, we 
mean either the debit or credit amount, as the case may 
be, that is required to produce an equality of the two 
sides, or, in other words, to close the account. The 
balances in a clearing-house statement are the respective 
differences between the debit and credit sides of the 
several accoimts included in the statement. A bank's 
balance in a clearing-house settlement would mean either 
the amount that it has to pay or the amount that it is 
to receive, according to the excess of debits or credits 
shown by the statement. 

The dictionaries define the verb "to collect" as follows: 
"To gather money from many people." A collection is 
defined as "that which has been gathered or taken up;" 
but amiong the banks and in clearing-house circles the 
term "collection" is somewhat expanded beyond these 
Hmitations, and is used for designating that which is to 



National Monetary Commission 

be collected. For example, the drafts or bills of exchange 
which a bank holds at a given date are frequently desig- 
nated as its ''collections," particularly at the time that 
they are being arranged in proper order for transmission 
to its correspondents or for delivery to the clearing 
house. Sometimes the term employed in such cases is 
"collection items," which, of course, means the items 
for collection. 

An "item," as the term is generally understood, means 
a separate article or entry in an account or schedule, or 
a sum so entered. The term among banks and in clearing 
houses is used in the latter sense almost literally. An 
item is that of which an entry has been made, whether 
it is a draft, bill of exchange, check, or note. 

The word is frequently employed in combination with 
a qualifying term, as, for example, "collection items," 
"out-of-town items," "city items," etc. 

A term which is as nearly original with and peculiar 
to clearing houses as any that might be cited is "clearing 
matter." "Matter," in this phrase, is a collective term, 
and designates any and all of the items that go into a 
clearing house. Clearing matter then means that col- 
lection of items, however assorted, which may be cleared. 
"Acceptable clearing matter" would designate that which 
is acceptable, according to the rules of the clearing house. 
There would, of course, be the opposite or negative term; 
for example, "unacceptable matter," meaning that which, 
while having somewhat of the character of clearing matter, 
is not of a kind that is handled by the clearing house in 
question, under the rules governing its operation. 



Clearing-House Methods 

A settlement, in ordinary commercial affairs, is an 
adjustment of accounts. **To settle" means to liquidate, 
or to pay, or to adjust differences. A ''settlement" 
may mean either the act of settling or that which is 
accomplished by settling. A bank's clearing-house settle- 
ment therefore means an adjustment or payment of the 
difference between the debit and credit side of the account 
and further designates either a receipt or a disbursement, 
as the case may be. Each member bank has a settlement 
with its clearing house daily. 

In the designation of checks, with respect to the location 
of the banks upon which they are drawn, considerable 
confusion exists at times in the term employed for the 
purpose. ''Personal check" and "local check" are terms 
occasionally used to indicate out-of-town checks or checks 
on country banks. An out-of-town check is one drawn 
upon any bank outside of the city in which a given clearing 
house is located, or outside of the city in which member 
banks of the given clearing house are situated. In other 
words, it is one that must be sent away for collection. 
The term " country check" has the same general meaning, 
but is applied more particularly to checks drawn upon 
banks located at a considerable distance from a given 
clearing-house center. Referring again to the terms 
"personal check" and "local check," above referred to, 
it must be evident to everyone who gives the matter the 
least thought that a check drawn by a depositor on a 
bank in New York would be a local check, and that it 
also. would be a personal check, and yet such a check, 
issued in the regular course of business, is not objection- 



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National Monetary C ommis s io 



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able from any point of view. On the other hand, a check 
drawn by a merchant in an interior town upon a bank in 
that town, irrespective of the responsibiUty of the drawer 
or the standing of the bank upon which it is drawn, would 
also be a personal check; but the latter would not rep- 
resent par funds in New York. Out-of-town checks and 
country checks, accordingly, are subject to special regu- 
lations with respect to costs of collection. 



Chapter III. 

SPECIAL FUNCTIONS OF A CLEARING HOUSE. 

PRIMARY OBJECT — EXTENSION OF FIEI.D — UST OF SPECIAL, 
FUNCTIONS — ACTION OF CI^EARING-HOUSE BANKS AT 
OUTBREAK OF CIVIIv WAR — MUTUAI, ASSISTANCE OF MEM- 
BERS — FIXING RATES OF INTEREST ON DEPOSITS — THE 
PRACTICE IN SIOUX CITY — ESTABUSHING RATES OF 
EXCHANGE — SOME BUFFAI^O HISTORY — ROCHESTER — 
BAI.TIMORE — HOUSTON — TOI^EDO — TOPEKA — ST. I.OUIS — 
WEST SUPERIOR — ST. JOSEPH — CLEARING-HOUSE LOAN 
CERTIFICATES. 

The primary object of a clearing house is the exchange 
of checks and drafts between the banks associated to- 
►gether for that purpose, and the settlement of balances 
resulting from such exchanges; but this is not the only 
function exercised. As already shown, this single func- 
tion constitutes a clearing house of the first class, while the 
addition of other functions puts the organization into 
another class. The tendency has been marked, especially 
in recent years, to include within the legitimate field of 
clearing houses all questions affecting the mutual welfare 
of the banks and the community as a whole. The bankers 
west of the Mississippi River have given to the country the 
most striking examples of the possibilities of clearing 
houses exercising various special functions, while the 
great associations of the East, and especially that of New 
York, have exemplified the utility and value of clearing- 
house loan certificates. 



National Monetary Commission 

The most important of the special functions of a clear- 
ing house are (a) the extending of loans to the Govern- 
ment, (6) mutual assistance of members, (c) fixing uni- 
form rates of interest on deposits, id) fixing uniform rates 
of exchange and of charges on collections, and (e) the 
issue of clearing-house loan certificates. 

lycss than a decade after the inauguration of the clear- 
ing-house system in America the civil war broke out and 
threw the Government into a condition of acute finan- 
cial embarrassment. The ordinary sources of income 
were insufficient to meet the demands of the approaching 
crisis. Thereupon the banks, members of the clearing 
houses in New York and Boston, responded with practical 
unanimity to the call of, the Government for loans, by 
which the latter w^as enabled to put armies in the field and 
^maintain the struggle for national unity. 

In times of panic it is not infrequently the case that a 
bank in good standing becomes temporarily embarrassed. 
Unfortunate report may cause a run upon it, and, being 
unable to call in a sufficient amount of its outstanding 
loans to meet the demands of its frightened depositors, it 
must either secure a loan or fail. In such an emergency 
the other members of the clearing house are usually 
willing to render assistance until the strain is relaxed. 
To secure such aid, however, a bank must be sound in its 
management and of good repute in every respect. Other- 
wise the members of the clearing house are likely to de- 
cline assistance, being quite willing to get rid of a weak 
and ill-managed member. 



Clearing-House, Methods 

Another of the special functions of a clearing house is 
the fixing of uniform rates of interest on deposits, and in a 
few instances on loans. In some associations the legality 
of such action is still regarded as a moot question, and 
hence they are reluctant to enforce such a rule. Other 
associations, however, have not hesitated to regulate the 
members on these points. As early as 1881 rates of in- 
terest were agreed upon in Buffalo, and were observed 
practically without fraction or violation for some nine 
years thereafter. They were broken at last only because 
of their nonobservance by new banks, which at the outset 
refused to become members of the clearing-house organi- 
zation. 

The Sioux City Clearing House Association has fixed a 
maximum rate of interest of 2 per cent per annum, to 
be paid by the members upon bank accounts or balances, 
and on time certificates of deposit 3 per cent. Without 
any special clearing-house regulation on the subject, it is 
generally understood by the banks that 6 per cent is the 
minimum rate that shall be charged on first-class loans, 
and that the rate shall range from that to 8 per cent, ac- 
cording to the character of the risk. 

At St. Joseph, Mo., the clearing-house rules provide 
that interest (not naming the rate) may be paid on bal- 
ances to banks, bankers, trust companies, the St. Joseph 
Cattle Loan Company, deposits of the Government, State, 
county, city, etc., or to individuals, firms, corporations, 
not located or doing business in St. Joseph or Buchanan 
County, but that no interest may be paid to individuals, 
firms, or corporations located or doing business in St. 



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National Monetary Commission 

Joseph or Buchanan County, except by unanimous consent. 
Trust companies may pay interest on checking accounts 
at the rate of 2 per cent per annum, while savings banks, 
trust companies, and savings departments of commercial 
banks, on savings accounts, may pay interest at a rate not 
to exceed 3 per cent. Interest is not allowed on demand 
or time certificates for a less period than six months, and 
then at the rate of 3 per cent per annum. No interest is 
allowed for any fractional part of a six months' period. 

The banks of Savannah, Ga., under clearing-house regu- 
lation, may pay interest not to exceed 3 per cent on in- 
dividual accounts, and then only when the balances in 
such accounts exceed $25,000. On bank balances, without 
limitation as to amount, tljey may pay not to exceed 3 
per cent. 

The question of clearing-house regulation of the rates 
to be charged on local loans has been considered by many 
associations in different parts of the country, but, gen- 
erally speaking, has not met with much favor. It is quite 
evident that on this one point the individual banks are 
jealous of their prerogative to loan their money at what- 
ever rate they choose. The nearest approach to clearing- 
house rate regulation of loans seems to be in the arrange- 
ment in vogue at Chattanooga, Tenn., by which the mini- 
mum rate to be charged by the banks in making their 
loans is determined from time to time by a committee 
appointed by the associate banks for that purpose. 

Still another of the special functions of a clearing house 
is the fixing of uniform rates of exchange, and of charges 



14 



Clearing-House Methods 

on the collection of items. In 1881, the year in which the 
clearing house in Buffalo was organized, a prominent 
banker in that city succeeded in uniting the banks on 
rates. The promoter of the enterprise, though well known 
for rate cutting, was a successful banker and had always 
been able to meet competition successfully. Hence, 
when he proposed a uniform-rate system, the other banks 
were only too glad to consider his propositions. Meetings 
were accordingly held, schedules of charges were drawn up, 
and rules were formulated for the guidance of the banks. 
In a short time a schedule was adopted and put in suc- 
cessful operation. The rates were not high, but were ar- 
ranged so as to do justice, as far as possible, to the banks 
on the one hand and the depositors on the other, and so 
satisfactory was the new regime that it remained in har- 
monious operation for nearly nine years. It is said that 
the increase in profits or collections, to the 12 banks 
interested, over the former method of doing business free 
of charge, paid the dividends of all the banks each year, 
and whatever profit was made on loans and discounts 
was used to build up the surplus. But the formation of 
new banks finally played havoc with the uniform-rate 
system. While it lasted, it was made obligatory upon 
every bank, but in 1891 the newly organized banks began 
to cut on rates. The clearing-house members endeavored 
to induce the new banks to join the association, but did 
not at first succeed. It was regarded as unjust to the 
member banks to hold them to the existing agreement 
when their competitors were free, and accordingly, in 



15 



National Monetary Commission 

June, 1 89 1, the schedule of rates was made no longer 
obligatory. 

In 1895 the Rochester (N. Y.) Clearing House Asso- 
ciation put in operation a schedule of collection charges, 
and the results have been most satisfactory. All of the 
banks were in favor of it, but there was at first some 
complaint on the part of customers. The rates for remit- 
tances of city items were fixed at a meeting of the asso- 
ciation early in the year 1895, as follows: Minimum 
charge, 10 cents; from $100 to $1,000, one- tenth of i 
per cent; from $1,000 to $2,000, $1; over $2,000, one- 
twentieth of I per cent; par remittances to be made 
weekly. Provision was made for a fine of $1,000 as a 
penalty for any member failing to observe the rates, $250 
of which to be paid to the party giving the information. 

On the ist day of February, 1897, a rule went into 
force at Baltimore requiring the members to charge and 
collect, without rebate, from all individuals, firms, or 
corporations residing in the city, who might thereafter 
become new depositors or customers of the banks which 
are members of the association, such minimum rates of 
exchange on checks, drafts, notes, and acceptances, pay- 
able out of the city, as are named in schedules to be 
furnished from time to time by an exchange committee 
of the clearing house. The penalty for violation of this 
rule is expulsion from the association, provided a majority 
of the members vote in favor thereof. 

At a meeting of the Houston (Tex.) Clearing House 
Association March 9, 1897, the following resolutions were 
unanimously adopted: 



16 



Clearing-House Methods 

Owing to the fact that banks in certain cities of this State are uniformly 
charging the banks of Houston exchange on all collections not reading 
"with exchange," bearing indorsements of banks outside the State: There- 
fore be it 

Resolved by the Houston Clearing House Association, That all its members 
will hereafter, as a matter of self-protection, charge the current rate of 
exchange upon all collections received from banks located in any city 
where the foregoing rule is in effect, and which may bear the indorsement 
of any bank or banker outside of Texas, or originating outside of the State. 

Resolved, That this resolution take effect on and after April i, 1897. 

In the articles of association of the Toledo (Ohio) Clear- 
ing House it is provided as follows: 

It shall also be in the power of such committee (the committee of manage- 
ment) to fix rates of charges on items outside the city and charges for 
drafts or currency from time to time, if deemed advisable, and change, 
revise, or suspend the same as circumstances require. 

The constitution of the Topeka (Kans.) Clearing House 
Association touches on the subject of collection charges, 
as follows: 

Rates for collections, whether made or not: Collection payment in 
advance up to $50, 10 cents each item; $50 to $100, 15 cents each item; 
$100 and upward, 25 cents each item. Collections on agricultural imple- 
ments paper, 25 cents each item. All drafts drawn with bill of lading 
attached, whether cash items or not, 25 cents each item; and if cash is 
advanced on the same, not less than 10 cents per 100, or $1 per 1,000. 
Rates of exchange on drafts and collections drawn with exchange shall be 
made at not less than 15 cents up to $50, 25 cents up to $100, and 10 cents 
for each additional hundred. The above charges shall not apply to col- 
lections not drawn with exchange received from bank correspondents 
who do not charge collecting bank on like items. 

The clearing-house association at St. Louis has in 
force a most successful system of collection charges, 
which are obligatory upon all the banks members of the 
clearing-house association and upon all banks and trust 
companies making their clearings through members of 
the clearing house. 



17 



National Monetary Commission 

The original schedules were adopted in March, 1895, 
and served their purpose well for over twelve years. On 
the ist day of March, 1907, however, new schedules were 
adopted, a synopsis of which follows: 

It is obligatory upon every bank and trust company 
connected with the clearing house to charge for all items 
received from St. I^ouis city customers (including all 
banks and trust companies connected with the associa- 
tion) and passed direct to their credit or cashed for any 
resident of the city on points (except those designated as 
discretionary) in certain named States, generally in the 
Bast, not less than 75 cents per $1,000 on the amoimt of 
the item. If this per cent when calculated does not 
equal 10 cents, the charge can not be less than that sum, 
except on items of $10 or under, when the charge shall be 
5 cents. Items received at one time for one customer, 
payable at the same collection point, may be treated as 
one item, and charge made accordingly. 

On certain other designated points, generally in the 
Middle States, the rate of collection is not less than $1 
per $1,000, and on items drawn on certain States in the 
West and extreme South the rate per $1,000 for collection 
is not less than $2. 

Certain cities are designated whereon the minimtun 
charge shall be 50 cents per $1,000. Among these are 
Buffalo, N. Y., Cleveland, Ohio, Indianapolis, Ind,, and 
Pittsburg, Pa. Still other cities are specially named as 
points whereon the minimum charge shall be $1 per $1 ,000. 
These cities include Denver, Colo., Lincoln, Nebr., and 
Omaha, Nebr. 



18 



Clearing-House M e t h o d s 

The rules further name the following cities as points 
upon which it is discretionary with each bank or trust 
company as to whether or not it shall charge for collecting 
items drawn thereon: New York, Brooklyn, Jersey City, 
Boston, Philadelphia, Baltimore, Washington, D. C, 
Chicago, Cincinnati, Ivouisville, and New Orleans. 

Each bank and trust company member of or connected 
with the clearing house is required to collect the fore- 
going charges on all items not later than the third day of 
the calendar month next following the receipt or han- 
dling of the item, or issuance of the draft or check, and no 
such bank or trust company is permitted to allow, either 
directly or indirectly, any rebate or return of any such 
charges, or to make in any form, whether of favor or 
otherwise, any compensation therefor. 

The violation of any of the rules by any bank or trust 
company clearing through a member would deprive the 
same of its connection with the association and work the 
forfeiture of its rights and privileges in the clearing house. 
For a similar offense any member would be expelled on a 
three-fourths vote in favor thereof. 

Up to a comparatively short time ago no other asso- 
ciation in the country had approached that of St. Joseph 
in the detail with which it had worked out a system of 
regulations governing the conduct of its members in 
regard to making collections. In the past few years, 
however, considerable attention has been given to the 
subject by the several associations, with the result that 
between 50 and 60 per cent of all the clearing houses in 
the United States are now working under comprehensive 



19 



National M o n et ar y Commission 

rules and regulations covering the collection of items 
which come under this head. 

The same is true, to a somewhat less extent, perhaps, 
with regard to the regulation of the premium on exchange, 
the cost of transfers by wire, and the limitations to the 
deposits of city customers, which further functions may 
well and profitably come within the scope of each local 
association for regulation. 

In this connection each member of the St. Joseph 
Clearing House Association is allowed to submit a list of 
the wholesale jobbers and manufacturers and live-stock 
commission merchants to whom it may sell exchange at 
50 cents per $1,000, and the list must be approved by 
the association. 

St. lyouis makes a like charge to any party taking a 
draft drawn by any bank or trust company member of 
or connected with the clearing-house association on New 
York, Philadelphia, or Boston; and if the premium thus 
estimated on the amount of any draft or check does not 
equal 15 cents, then the charge on the item must be that 
sum. This rule, however, does not apply to the purchase 
and sale of exchange between members of the clearing 
house or institutions clearing thro;ugh members. 

Upon all transfers by telegraph by members of the 
Wilmington (N. C.) Clearing House a charge of $1.50 
per $1,000, plus the cost of the telegram, is made. Trans- 
fers by cable command the premium quoted in New 
York at the time, plus the cost of telegraphing. Transfers 
by telegraph for banks and city customers, exempt from 
paying exchange at not less than $1 per $1,000, and at a 



Clearing-House Methods 

minimum of $2 per $1,000 to others; for counter exchange, 
10 cents minimum and 5 cents for additional purchases at 
the same time. 

The position taken by the New York Clearing House 
Association in the matter of collecting out-of-town 
items should be referred to in this connection. It is 
discussed in another chapter, to which the reader is 
referred. The same remark applies to the foreign depart- 
ment of the Boston Clearing House, which is likewise 
presented in another chapter. 

One of the most important of the special functions of 
the clearing house, to which attention will be called, is 
the issue of clearing-house loan certificates in times of 
panic. By this means, in some cases, the specie reserves 
of the clearing-house members have been combined in a 
way to become a common fund, so that any bank that 
experienced an unusual demand for specie was supported 
by the combined reserves of all the banks. The bank 
thus assisted secures the other members against loss by 
depositing with a committee, appointed for the purpose 
of receiving them, its securities in the shape of stocks, 
bonds, and bills receivable. So important are the history, 
methods, and results of this remarkable device that 
special chapters are necessary for their exposition. 

Various clearing houses in different parts of the country 
have incorporated into their rules and regulations certain 
special features, some of which are worthy of mention. 
For instance, at Altoona, Pa., it is the duty of the asso- 
ciated members to report to the secretary of the associa- 
tion any flagrant violation of commercial or financial 



21 



National Monetary Commission 

integrity on the part of anyone having business relations 
with them. Furthermore, the solicitation of accounts 
of other members is prohibited, and any members having 
accounts of the same depositors shall have the right of 
ascertaining, each from the other, the extent and charac- 
ter of the loans made to such depositor. It is also 
provided that when a depositor of any member bank 
applies to another member for a loan, the member so 
applied to shall have the right to ascertain from the 
applicant's bank whether the loan had been previously 
offered there and, if refused, the reason for refusal. 

At Philadelphia, Pa., Chester, Pa., and Wilmington, 
Del., it is provided that the associated banks shall report 
at once to each other the names of individuals, firms, or 
corporations whose accounts have been closed on account 
of overdrawing, depositing worthless checks, or otherwise 
defrauding them. 

The associated banks of Minneapolis, by special agree- 
ment, but not by constitutional provision, have appointed 
an advertising committee, of which the manager of the 
clearing house is the chairman, to which is submitted all 
general schemes of advertising. The schemes are sub- 
mitted in writing to the committee by the solicitor and 
action taken thereon. Many of these propositions are re- 
jected, and what is known as clearing-house advertising 
appears only in the best mediums. The claim is made 
that this concerted action serves to secure much better 
rates and does not preclude any bank from placing ad- 
vertisements in any other direction it desires. Chatta- 
nooga, Tenn., and Fort Wayne, Ind., also have made pro- 



Clearing-House Methods 

vision regulating the placing of advertisements by their 
member banks. The regulations of the Portland (Me.) 
Association state that no member shall, by advertisement, 
circular letter, or publication, reflect unfavorably upon the 
responsibility of another member. 

The constitution of the Rochester Clearing House As- 
sociation provides that members are prohibited from 
offering a higher rate of interest to induce a customer to 
change his account from one bank to another or as an 
offset against collection charges. 

At Seattle, Wash., a uniform discount rate on Canadian 
currency has been agreed upon, as follows: For the first 
$ I GO, one-half of i percent; on any sum in excess of $ioo, 
one-eighth of i per cent. 



23 



Chapter IV. 

POSSIBLE DEVELOPMENTS OF THE CLEARING-HOUSE 
SYSTEM. 

NEW FUNCTIONS TO BE EXERCISED — COUNTRY CHECKS — 
TRANSFER OF CURRENCY FROM POINT TO POINT — POS- 
SIBIvE USE OF GOIvD CERTIFICATES — SPECIAI^ EXAM- 
INERS — SETTLEMENT OF BAI.ANCES — ADVANTAGES OF 
THE CASH BASIS — CI.EARING-HOUSE DEPOSITORIES — THE 
USE OF DEPOSITORY CERTIFICATES. 

The clearing-house system is becoming a definitely 
recognized power in the financial methods of the United 
States. It is as yet in its infancy, and the powers that the 
various clearing houses possess are capable of develop- 
ment and expansion to an indefinite degree. The clearing 
house, which was begun simply as a labor-saving device, 
has united the banking interests in various communities 
in closer bonds of sympathy and union and has developed 
into a marvelous instrumentality for the protection of the 
community from the evil effects of panics and of bad bank- 
ing. Clearing houses are gradually becoming a welding 
force that ultimately will bring to the banking business of 
this country the centralization which it so greatly needs. 
In the course of time rates for money in the United States 
will become more and more on a par with those prevailing 
in European money centers, and then the clearing houses 



24 



Clearing-House Methods 

of the various financial centers of this country will be 
obliged to undertake functions which as yet they have 
only discussed. 

As money rates decrease losses from bad debts must be 
brought to a minimum, and the question of a central 
agency, which shall disseminate information regarding 
paper outstanding among the banks, must and will re- 
ceive the attention it deserves. 

As before stated, the payment of uniform rates of inter- 
est on bank deposits has already been taken up by many 
of the associations in this country, with the result that fair 
and equitable rates have been agreed upon to be paid for 
balances. The time is near at hand when all the banks 
that are members of clearing houses will be obliged to sink 
their differences and by agreement regulate, monthly or 
quarterly, the rate of interest to be paid, the rate to be ^ 
subject to change according to the varying conditions of 
the money market. 

More careful supervision over the establishment of new 
institutions will be necessary, and the regulations regard- ^ 
ing nonmembers clearing through members will also re- 
ceive closer attention. 

The question of collecting country checks is now being 
regulated in many clearing houses — a matter which is 
specially treated in one of the chapters of this book — and 
the time is not far distant when this subject will receive 
the consideration from all the clearing houses to which 
it is entitled. 

The question of shipping currency by express from one 
clearing house to another will, in time, be effectively 

20040 — 10 3 25 



National Monetary Commission 

dealt with. By the cooperation of the various associa- 
tions it is conceivable that the scope of usefulness of the 
gold certificates issued by the various assistant treasurers 
of the United States, payable to any member of a given 
clearing house in the city in which the subtreasury issuing 
the same is located, which is now confined to indorsement 
and use in the payment of clearing-house balances in the 
city of issue, could be enlarged so that the certificates 
could be used in the liquidation of clearing-house balances 
in any city in which there is a subtreasury, or be sent 
through the mails at small rates to the sending bank, 
thereby becoming a safe medium of exchange between 
large centers, minimizing loss and saving the transporta- 
tion of great sums of money. The Government might 
make a small charge for their redemption if it redeemed 
them in any city other than the one of issue. 

It is significant of the ever-widening scope of clearing- 
house supervision and usefulness that several associations 
have in the past few years, after giving careful considera- 
tion to the subject, appointed special bank examiners, 
assisted, where necessary, by trained experts under rigid 
regulation and ready to go to work at a moment's notice. 
This departure has been deemed of sufficient importance 
to warrant a complete explanation of the conditions under 
which these examiners operate, and a special chapter is, 
therefore, devoted to it. 

The settlement of balances is a matter which should 
be most carefully considered by the banking and business 
community, for the proper management of settlements 
will do a great deal toward enhancing the prosperity of 



26 



Clearing-House Methods 

the community. Bankers some time plead for a more 
elastic currency, but what is needed is more elasticity in 
the assets of the banks. What is wanted are assets that 
are readily converted into cash in times of panic, and 
which will pay depositors as well as permit new loans. In 
such times banks need expansion in the right direction, 
and not contraction. Cash settlements in all the clearing 
houses of the United States would be conducive to better 
banking, for, under this rule, the clearing-house banks 
would be obliged to keep themselves prepared at all 
times to meet large drafts upon them through the clear- 
ings. On the other hand, when clearings are settled by ^ 
drafts upon financial centers, if the banks are not prepared 
for emergencies, they borrow from the institutions in 
those centers, and sometimes thereby expand themselves 
beyond prudent limits. 

Bank oflficers often loan money to manufacturing cor- 
porations, which invest the same in plant, and are for 
this reason unable to meet their notes when due. Such 
loans become fixed assets of the bank, and are not avail- 
able in times of financial stringency. The banks thereby 
become, to a certain extent, stockholders in the corpora- 
tions. If the banks compel the payment of such loans v 
in times of trouble, they thereby restrict the operations 
of the manufacturing concerns, throw men out of em- 
ployment, and thus disarrange the entire industrial sys- 
tem of the community. 

Banks are often led to invest their money in unavail- 
able assets, simply because they feel that they will not 
be called upon to pay out any large amount of cash, either 



27 



National Monetary C ommis s io 



n 



to their depositors direct, or through the clearing house. 
Consequently, the settlement of balances in anything but 
cash, or its equivalent, is liable at times to affect the 
whole economic condition of the community. If a care- 
ful study were to be made of the most prosperous of our 
interior cities it would be found that the banks in these 
cities settle their clearing-house balances on a cash basis. 

Cash settlements at the clearing houses of interior 
cities would compel the banks to keep more money in 
their vaults. This would enable them more readily to 
meet the requirements of their customers. The need of 
outside assistance would be in a measure removed, and 
thereby all the financial institutions of the country would 
be kept upon a more even basis. 

Some large clearing houses would find it advantageous 
to provide depositories in which currency of all denomi- 
nations could be deposited in vaults, and certificates 
issued therefor that could be used in the settlement of 
balances. Then, during the crop-moving periods and at 
other times when there is a demand for small bills, they 
could be supplied from the clearing-house vaults. By 
such an arrangement the banks would not be obliged, 
as has often been the case, to give up one form of money 
which they desire to keep for the sake of procuring 
another form, and therefore they would be able to work 
to a greater or lesser extent independently of the sub- 
treasuries. 

The New York and Boston clearing house associations 
have recently made provision for their members to 
deposit currency, as suggested above, taking clearing- 

28 



Clearing-House Methods 

house currency certificates therefor, which are Hmited in 
their use to the payment of balances in the clearing 
house, the same as clearing-house certificates for gold, 
and the idea has worked out very successfully. In view 
of the success of the idea in these cities, it seems very 
probable that some of the other large clearing houses 
will take the matter under advisement. 

These and many other matters might be taken up by 
clearing houses and brought to the same degree of per- 
fection as the loan certificate, an instrumentality that 
has been of inestimable value to the business world. 



29 



Chapter V. 

THE ADMINISTRATION OF CLEARING HOUSES. 

UST OF OFFICIAIvS — DUTIES OF OFFICERS — COMMITTEES — 
ANNUAI. MEETINGS. 

The government of a clearing-house association in the 
United States is, theoretically, vested in a president, 
vice-president, secretary, treasurer, manager, and a clear- 
ing-house committee, sometimes termed "committee of 
management" or "executive committee." Not every 
association, however, is as completely officered as this; in 
fact, there are many associations that do not have the 
full list of officials named. A president, a manager, and 
an executive committee, however, are found in the organi- 
zation of nearly every clearing-house association, for 
these functionaries are practically indispensable. The 
other officials mentioned are lacking in various associa- 
tions, especially in those located in smaller cities, their 
duties being performed by some of the other officers. 

It is the duty of the president to preside at all the 
meetings of the association. As a rule, he has power to 
call special meetings whenever he may deem it advisable, 
and must do so upon the request of a specified number of 
the members. He exercises a general supervision over 
clearing-house affairs, and performs the duties usually 
devolving upon an executive officer. In many cases he 
is ex officio chairman of the clearing-house committee 
and of all standing committees. He is elected annually, 
with few exceptions, and serves without compensation. 



30 



Clearing-House Methods 

The vice-president performs the duties of the president 
in the latter 's absence. The duties of secretary and 
treasurer are frequently performed by the manager. The 
secretary keeps the record of the proceedings of the meet- 
ings of the association, and performs all the duties usu- 
ally pertaining to that office. 

The treasurer must account for the funds intrusted to 
his keeping, and must pay out the same upon the written 
order of the president, countersigned by the manager, or 
if the latter be at the same time treasurer of the associa- 
tion, then upon the written order of the clearing-house 
committee, or upon any other authority that the associa- 
tion may designate. 

The manager is either elected by the association or 
appointed by the executive committee, to serve, as a rule, 
one year, although almost invariably he is reelected from 
year to year for an indefinite period. In some of the 
large cities a heavy bond, with sureties, is required of the 
manager, varying in amount from $10,000 to $20,000, and 
in one or two instances the requirement is as high as 
$50,000. In cities where no cash is used in the settlement 
of balances there is, of course, much less opportunity for 
fraud on the part of the manager, and hence in such cases, 
as a rule, no bond is demanded. In many of the smaller 
cities, where the manager's duties and responsibilities 
are light, and where he is regularly employed in some 
other capacity, his services are not infrequently gra- 
tuitous. 

The manager has immediate charge of all business at 
the clearing house, subject to the control of the clearing- 



31 



National Monetary Commission 

house committee. The employees and the settHng clerks 
and messengers from the banks, while at the clearing 
house, are under his immediate direction. He imposes 
and collects fines for violations of the rules of the associa- 
tion, has supervision of all the records of clearances and 
settlements, and sees that the clearing house and the 
property connected therewith are kept in order. He makes 
such annual reports and performs such other duties as may 
be required of him. 

The clearing-house committee (also called the ''committee 
of management" and "executive committee") is usually 
composed of from three to five members, chosen from the 
most capable and experienced bankers in the association. 
In one case which has come to notice the membership of this 
committee consists of but two members, while it some- 
times exceeds five, as at Philadelphia and Pittsburg, where 
there are six members besides the president, who is ex 
officio a member, and at St. Joseph, where each bank has 
a representative on the clearing-house committee, the 
number of bank members at the present writing being 
eight, thus making eight members of the committee. 

The clearing-house committee is elected annually, and 
is by far the most important of all the committees. In 
it is vested almost absolute power, the direction of practi- 
cally the whole machinery of the clearing house resting in 
its hands. It is empowered by the association to procure 
suitable rooms for the clearing house, to provide proper 
books, stationery, fuel, furniture, and whatever else may 
be necessary for the convenient transaction of business; 
to appoint a manager, except where this power is directly 



32 



Clearing-House Methods 

exercised by the association, and generally to supervise 
affairs. It draws on members for their share of the ex- 
penses, fixes the salaries of the clerks in the clearing house, 
and has the power to remove the same, and the manager 
as well, whenever it may deem such action to be for the 
best interest of the association. 

Not infrequently the clearing-house committee is 
authorized to examine a member, whenever it may seem 
necessary to it to do so, or whenever requested to do so 
by a specified number of other members, and, in case the 
member's condition justifies it, to demand sufficient 
securities for the protection of its balances resulting from 
the exchanges of the clearing house. It also has power, 
whenever it may seem necessary for the protection of the 
other banks, to suspend a member from the association 
until the latter takes action upon it. 

The clearing-house committee, in most cases, holds regu- 
lar meetings monthly, or oftener. Stated examinations of 
funds and securities are often required, as, for example, 
at San Francisco, where the committee must examine, at 
least quarterly, all securities and deposits of the associa- 
tion in its charge. 

In addition to the clearing-house committee, there is 
frequently a conference committee, a nominating com- 
mittee, an arbitration committee, a committee on admis- 
sions, an exchange committee, and, in special emergencies, 
a loan committee. No one association has all of these 
committees, but the New York Clearing House has all 
but the exchange committee. Most clearing houses are 
too small and their duties too simple to require so ex- 



33 



National Monetary Commission 

tensive a division of powers ; hence, as a rule, we find only 
one or two committees at most, in addition to the clearing- 
house committee. 

The conference committee is elected annually to serve 
in special emergencies, and its duties consist in acting in 
conjunction with the clearing-house committee whenever 
the suspension of a member becomes a question of ex- 
pediency. There must be at least a majority of each 
committee present to suspend a member, and a unani- 
mous vote is necessary to carry. In case of a suspension 
the clearing-house committee must forthwith call a general 
meeting of the association to take the matter into con- 
sideration. 

The nominating committee is elected annually, and is 
charged with the duty of presenting to the association 
at each annual meeting the names of candidates for 
president and secretary and for membership upon the 
various committees. 

The arbitration committee is elected by ballot at each 
annual meeting. Its duty is to decide all disputes that 
may be submitted to it by both parties thereto, a member 
of the association being one of them. In associations 
where no arbitration committee exists its function is 
usually performed by the clearing-house committee. 

The committee on admissions is also elected by ballot 
annually, and the clearing-house committee refers to it 
for examination all applications for membership in the 
association. 

Where an association has an exchange committee, the 
committee is elected each year. It is authorized and 



34 



Clearing-House Methods 

required from time to time to prepare schedules of rates 
of exchange on out-of-town items, including among them 
those taken as cash received for collection, or held as 
security for loans, or that might be discounted subject to 
collection. 

The clearing-house association holds an annual meeting 
for the purpose of electing officers and committees and 
for the transaction of other business. The quorum is 
usually fixed at a majority of all the associated banks. 
In some instances, however, it is fixed at two- thirds, and 
in a few cases even as low as one- third, of all the members. 
Sometimes a specified number is designated as constituting 
a quorum. Each bank is expected to be represented at 
the annual meeting by one or more of the officers, but 
usually is allowed only one vote. An exception to this 
rule is the association at Worcester, Mass., where two 
votes are allowed. For failure to be represented at an 
annual meeting a fine of from $2 to $10 is generally im- 
posed. It is the duty of the association to fix the salary 
of the manager, admit banks to membership, and, when 
occasion demands, to suspend or expel members. In 
some of the large cities the associations receive in special 
trust, and issue certificates for, such United States gold 
coin as any of the associated banks may deposit for safe 
keeping for clearing-house purposes. 



35 



Chapter VI. 

THE SETTLEMENT OF CLEARING-HOUSE BALANCES. 

RESULTS ACCOMPUSHED BY SETTI.EMENTS — RATIO OI^ 
BAI^ANCES TO CLEARINGS — SETTLEMENTS WITH 

MONEY — CLEARING-HOUSE SETTLEMENTS IN CANADA — 
MONEY IN LABELED PACKAGES — OBJECTIONS TO 
SILVER — METHODS OI^ SETTLING BALANCES WITHOUT 
MONEY — ADVANTAGES OF THE MANAGER'S CHECK 
OVER SETTLEMENTS IN CASH. 

The exchange of items between the banks accom- 
pHshes two resuhs: First, it places at the proper banks 
for payment the items to be exchanged which the several 
banks hold; and, second, it determines the difference 
between the amount of the items held by each bank 
against all the others and the amount held by all the 
other banks against each individual bank. The differ- 
ence constitutes the balance which is to be settled. 

A bank can not know whether its exchanges at the 
clearing house will bring it out a debtor or a creditor 
until the settling clerk returns from the clearing house. 
It is a very rare occurrence for a complete offset to take 
place in any bank's exchanges; that is, for the amounts 
sent to the clearing house to exactly equal the amounts 
received, in which case, of course, there would be no 
balance. Each bank expects a difference one way or the 
other, ranging from a few cents to a very large amount. 
In a great city a bank may be a creditor one day to the 
extent of several hundreds of thousands of dollars and 

36 



Clearing-House Methods 

the next day a debtor to a similar amount. It is of the 
utmost importance, therefore, that each bank should be 
prepared to meet any balance which may appear against 
it at the clearing house. 

The ratio of balances to clearings depends partly upon 
the number of banks, but much more upon the amount 
and character of their business and upon their relations 
one to another. This is illustrated by figures which 
have just been collected, covering the transactions for 
the year 1908. At Pittsburg, with 20 members and 128 
nonmembers clearing through members, the balances 
were 16.5 per cent of the clearings; at Buffalo, with 11 
members and 7 nonmembers, 12 per cent; at Chicago, 
with 20 members and 40 nonmembers clearing through 
members, 7.5 per cent; at Philadelphia, with 31 members 
and I nonmember, 11.5 per cent; at St. Louis, with 17 
members and 35 nonmembers, 9.3 per cent; while in 
New York, during the fifty -four years of its existence, 
the percentage of balances to clearings have been only 
4.64 per cent, notwithstanding the operation of the 
United States assistant treasurer, who almost always has 
a heavy debit balance. 

The more nearly the banks stand on an equality with 
one another, the more nearly will their transactions 
approach a complete offset, which, of course, would leave 
no balance to settle. 

The methods of settlement of clearing-house balances 
may be divided in a general way into two classes: First, 
settlements with money; and, second, settlements with- 
out money. 



37 



National Monetary Commission 

A clearing house acts merely as the agent of the banks 
in the payment of the balances. It pays to the creditor 
banks the money it receives from the debtor banks. As 
soon as the result of the exchanges is known the debtor 
banks may begin the payment of their balances, all of 
which may be paid in before the expiration of a specified 
time, usually two or three hours after the exchanges 
have been completed. Failure on the part of any mem- 
ber to meet its requirements promptly would subject it 
to a fine. 

Any kind of United States money is acceptable in 
most of the small clearing houses; but in a majority of 
the large ones certain kinds of money are not acceptable. 
The following are illustrative examples: At Baltimore 
gold coin, greenbacks, and certificates, redeemable in 
coin, are used, and silver is accepted only for fractional 
parts of thousands; at Buffalo, United States treasury 
certificates, United States legal-tender notes, national- 
bank notes, gold and silver certificates, and gold coin are 
used; at Milwaukee, gold coin and currency; at St. 
Paul, all forms of currency except silver coins; and at 
San Francisco, Los Angeles, Cal., and Portland, Oreg., 
gold coin is used exclusively. 

About 40 per cent of the clearing houses of the United 
States settle their balances either in cash or by manager's 
check payable in cash. In Canada, however, all the 
clearing houses, except that at Hamilton, settle in gov- 
ernment legal-tender notes. Settlements in Hamilton are 
made by drafts upon the head offices or agents of the 
respective banks, on Montreal, in favor of the clearing 



38 



Clearing-House Methods 

bank, which gives its own drafts on Montreal to the 
banks in credit. 

Some clearing houses, especially the larger ones, require 
that money, when paid in by the banks, shall be assorted 
and put up in packages, each package to contain bills of a 
given kind and denomination, and w^hen the balances are 
sufficient, to consist of specified amounts, usually $i,ooo, 
$5,000, and $1 0,000, respectively. For instance, at Mil- 
waukee, all currency paid to the clearing house, when the 
amounts are sufficient, must be put up in packages of 
$5,000 or $10,000 each. The inside parcels of the pack- 
ages must bear the number of the bank putting up the 
same, with the date thereon. Such packages must be 
securely bound with twine or tape, with a wide paper band 
around the center, fastened with wax, bearing the seal of 
the member putting them up, and the date of sealing. No 
notes of a less denomination than $5 (except to make 
change) or over $1,000 can be paid in. Likewise all gold 
coin must be put up in strong canvas bags, of $5,000 each, 
and such bags must have suitable labels bearing the name 
of the sealing member, amount of contents, and date of 
sealing. For all gold coin or currency paid in, in amounts 
less than $5,000, the value of the parcel or package must 
be guaranteed by the bank (whose number it bears) to the 
bank breaking the package for twenty-four hours after 
receiving it, but in no case can claims be made after a 
package has been paid to any party not a member of the 
association. 

Silver coin is not excluded from settlements in clearing 
houses in the United States because of any prejudice 



39 



National Monetary Commission 



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40 



Clearing-House Methods 

against it as money, but because, owing to the enormous 
amount of clearing-house transactions, its bulk would 
render it too cumbersome and inconvenient for handling. 
For the same reason it is not so desirable as other forms of 
money in large transactions of any kind. 

A receipt is given at the clearing house to each debtor 
bank as soon as its balance is paid. There is presented 
herewith a reproduction of the form used at Buffalo. 

This receipt is filled out by the clearing-house clerk 
showing the amount due from the debtor bank to the 
clearing house. Its authenticity is established by the 
signature of the manager at the top. This receipt is 
taken away by the debtor bank's messenger, who later 
returns with the necessary funds. The manager then 
signs the receipt in the usual place, and in this condition 
it becomes a voucher to the debtor bank for the payment 
it has made. 

The clearing-house clerks of these banks have already 
carried back a receipt, of which a copy is given herewith, 
that is likewise " viseed " by the manager at the top. This 
receipt is then signed by the cashier of the creditor bank 
and sent at the hands of two trusted messengers, who re- 
ceive the funds from the clearing-house manager. This 
receipt in turn is kept by the clearing house as its voucher 
for the payment made. A receipt is sometimes written 
by the clerk receiving the balance in a book kept by the 
manager for that purpose, but a more common method is 
one similar to that described as given by the bank. 

There are no less than five different methods of settling 
balances, in whole or in part, without the use of money 

20040 — 10 4 41 



National Monetary Commission 



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42 



Clearing-House Methods 

at the clearing house. They are (i) by manager's check 
on debtor banks given to creditor banks; (2) by borrowing 
and loaning balances without interest; (3) by borrowing 
and loaning balances with interest; (4) by the use of one 
or more of four forms of certificates, viz, gold and cur- 
rency depository certificates. United States assistant 
treasurer certificates, and clearing-house loan certificates; 
and (5) by draft on another city. 

When money is not used in the adjustment of balances 
at the clearing house, one of the most common methods 
of settlement is by manager's check on debtor banks in 
favor of creditor banks. In such cases the creditor banks 
send clerks to the clearing house to receive the manager's 
checks, which may be cashed by the debtor banks, ex- 
changed for cashier's checks or exchange on another city, 
or sent through the clearings on another day. Thus, at 
New Orleans, La., Jacksonville, Fla., Kansas City, Mo., 
and other points, manager's checks are used and are 
cashed on the afternoon of the same day they are issued, 
while at Cincinnati, Ohio, Fort Wayne, Ind., and Dayton, 
Ohio, banks exercise the option of collecting their checks 
the same day or of sending them through the exchanges 
on the day following. At Danville, 111., the balances are 
settled direct between creditor and debtor banks, and not 
through the clearing house, as is customary. 

The liability of the clearing house for manager's checks 
usually ceases at 3 o'clock on the day of issue, so that 
when they are carried over it is done at the risk of the 
holder. Where banks contribute to the expense of the 
clearing house in proportion to their average daily clear- 



43 



National Monetary Commission 

ings for a given time, they often prefer to collect on the 
day of issue rather than increase their exchanges, and 
thus their expenses, by having the manager's check 
cleared. 

With all its various disadvantages there is one important 
advantage of the manager's check over settlements in 
cash at the clearing house: By its use only one transfer 
of cash is necessary in making settlements, and thus the 
risk is greatly diminished. 

The second mode of settlement, other than on a cash 
basis, is by borrowing and loaning balances without 
interest. At Chicago and Pittsburg this method is 
practiced as a matter of convenience to the several mem- 
bers. After the exchanges have been made and the 
balances determined, a certain length of time is devoted 
to this transfer. 

The third method is that of borrowing and loaning 
balances upon interest, as practiced at Boston. 

The fourth method is that of employing some form of 
certificate. Many of the large clearing houses provide 
for a depository to receive in special trust such United 
States gold coin as any of the banks belonging to the 
association may voluntarily deposit with it for safe- 
keeping, upon which certificates may be issued, to be 
used in the settlement of clearing-house balances. Such 
certificates are usually issued in denominations of $5,000 
and $10,000, and are negotiable only among the asso- 
ciated banks. Many of the clearing houses impose a fine 
for their transfer to any other party than a member of 
the association. 



44 



Clear tn^-House Methods 

Coin certificates were devised by F. W. Edmunds, of 
New York, and came into use about 1857. The Bank of 
America first acted as a depository, but after the beginning 
of the greenback epoch the associated banks chose the 
United States subtreasury as such depository for both 
gold and currency. When the new clearing house in 
Cedar street was occupied, the gold deposits were trans- 
ferred to the magnificent vaults with which it is provided, 
and these at the present time hold a very heavy deposit 
of gold, as well as a very large amount of currency, against 
which has been issued clearing-house certificates as before 
mentioned. The associations in practically all of the 
large cities of the United States now use these gold de- 
pository certificates in the settlement of clearing-house 
balances. 

Clearing-house loan certificates are issued only in 
emergencies, as explained in the chapter devoted to 
that subject. The period during which balances are 
settled by such instruments lasts usually only three or 
four months, or until the financial disturbance which 
called them forth has subsided. 

The fifth method is by draft on some other city. In 
some places the option is given of settling in cash or by 
draft, as at Austin, Tex.; Charleston, S. C; Frederick, 
Md.; Jacksonville, Fla.; Kansas City, Mo.; New Orleans, 
La. ; Rochester, N. Y. ; and Saginaw, Mich. In others set- 
tlements are made exclusively by drafts on another city. 
Among these are Syracuse, N. Y. ; Worcester, Mass. ; Fall 
River, Mass.; Fremont, Ohio; Hartford, Conn.; Holyoke 
and Lowell, Mass.; and Binghamton, N. Y. Sometimes 



45 



National M o n et ar y Commission 

foreign drafts are used in payments of equal thousands 
only, as at Wilmington, Del., and Chester, Pa. 

Generally speaking, about 40 per cent of the clearing 
houses of the United States use drafts on other cities in 
paying their balances. About 30 per cent settle by 
manager's check, and about 25 per cent settle by cash 
alone, the remaining 5 per cent settling by a combination 
of two or more of the foregoing methods. 

Clearing houses located in New England settle, as a 
rule, with drafts on Boston or New York, or both. Clear- 
ing houses in the vicinity of Philadelphia usually set- 
tle with drafts on that city or on New York, and those 
located in that part of the country lying east of the Missis- 
sippi River settle more or less by draft on New York or 
Chicago. Settlement is also sometimes made by draft 
on some of the larger cities, such as Baltimore, Washing- 
ton, Savannah, Kansas City, Detroit, Omaha, and San 
Francisco. 



46 



Chapter VII. 
CLEARING-HOUSE EXCHANGES. 

I.OCATION OF CLEARING HOUSES — ARRANGEMENT OF FUR- 
NITURE — HOUR OF MAKING EXCHANGES — CI.EARING MAT- 
TER — CHARACTER OF INDORSEMENTS — MESSENGERS AND 
SETTUNG CLERKS — CONDUCTING THE EXCHANGES — DE- 
TERMINING BALANCES — TWO CLEARINGS A DAY. 

No city has more than one bank clearing house. The 
location of the clearing house is always as near the center 
of the banking district as possible. It is especially impor- 
tant that this should be so in a large city, where the banks 
are numerous and often scattered over a considerable area. 
None of the associations, except the one at New York, 
owns its clearing-house property. Instead, the various 
organizations occupy rented quarters, usually in one of 
the banks belonging to the association, and these they 
have equipped with the necessary furniture, stationery, 
and desks for the various members. 

The desks are sometimes arranged in straight rows, 
and sometimes in elliptical curves, and in a few cases 
they are placed like the desks in a schoolroom. It is 
not uncommon in small places for the clerks to meet 
and make their exchanges around a table, and occasionally 
the same rule prevails in large centers. 

Many ingenious contrivances are wrought out in some 
of the exchange rooms, as well, also, as unique features 
of decoration. For example, on the walls of the room 



47 



National Monetary Commission 

at Buffalo is an ideal conception of the leading clearing 
houses of the country, with New York in the center and 
the large cities grouped around it. At Pittsburg the 
arrangement of the desks, lights, and manager's quarters 
jS unexcelled for beauty and artistic taste, except it be 
at New York. The manager's desk is connected by a 
pneumatic tube with the bank below, through which 
small sums of money are blown when needed to make 
change in the settlement of balances. At Providence 
there are two rows of desks, with that of the manager 
at the end. Bach bank is represented by a single clerk. 
Immediately upon his arrival at the clearing house he 
deposits with the manager's assistant a credit ticket, and 
then proceeds to deposit his items in stationary boxes, 
located on the desks of the members. Each clerk has a 
key to his own box, and after distributing his checks, 
he takes his place on the inside of the row of desks and 
there performs the duties of a settling clerk. 

Many of the smaller clearing houses do not rent perma- 
nent quarters, but instead the banks belonging to the 
association act as clearing agents in rotation, the cashier, 
or some other official of the bank where the clearings 
for the time being are made, acting as manager. At 
Hastings, Nebr., for instance, the banks alternate weekly; 
at Jacksonville, 111., monthly; and at Bay City, Mich., 
once in two months. At Lowell, Mass., a clearing bank 
is chosen at each annual meeting of the association. 

Each clearing house determines for itself the time 
when its daily exchanges shall be made, and as prac- 
tically the only criterion in selecting an hour is the con- 



48 



Clearing-House Methods 

venience of the several members, it is not surprising 
that there is a wide diversity among associations in this 
regard. From 8.30 o'clock in the morning, when the 
exchanges are made at New Orleans, La., the time varies 
to 3.15 o'clock in the afternoon, when the exchanges are 
made at Chattanooga, Tenn. All hours between these 
are occupied, most of the associations, however, clearing 
before 12 o'clock. On Saturdays, in a majority of cases, 
clearings are made at an earlier hour than on other days 
in order to enable the banks to close their business and 
take advantage of the short day. 

When the exchanges take place at 10 o'clock, or earlier, 
it is customary for the members to clear the items received 
in the morning mails, or, in some cases, to include only 
the larger items so received, and to send those received in 
the afternoon and the smaller amounts, if any, left over 
from the morning through the exchanges on the following 
day. But when the exchanges take place as late as 3 
o'clock, most of the items received are cleared the same 
day. 

The rules regulating the kinds of matter to be cleared 
are by no means uniform. A number of organizations 
specify in their articles of association what shall be con- 
sidered proper clearing matter. Of such rules, the follow- 
ing, from the by-laws of a prominent western clearing 
house, is one of the most common: 

Proper matter for clearing shall consist of checks, drafts, manager's 
certificates, certificates of deposit, demand or matured, and any other 
matter specially agreed upon, until notice is given to the contrary, and 
any bank clearing paper not proper shall be fined. 



49 



National Monetary C ommis s i o 



n 



In addition to the regular checks, express money orders 
are cleared at Des Moines, Iowa, through a bank desig- 
nated by the express company as its depository. 

At Fargo, N. Dak., the unusual custom prevails of 
sometimes clearing, in addition to the checks on city 
banks, items for out-of-town correspondents. For in- 
stance. Bank A sends through the exchanges to the other 
members the items which it has received on their corre- 
spondents, and the other members in turn clear the 
items which they hold on A's correspondents. 

All checks, notes, acceptances, and other items received 
by any members at New Haven, Conn., against an asso- 
ciate member are proper matter for clearing. Any mem- 
ber at New Orleans, La., voluntarily accepting a cashier's 
check in settlement of a clearing-house balance is not 
allowed to pass the check through the clearings, but 
must collect it direct from the member who issued it. 

Notes and drafts are not sent through the exchanges 
at Rockford, 111., nor are notes and bills of exchange at 
St. Paul. As a rule, only regular checks are included 
in the exchanges at Savannah, Ga., and never drafts, 
notes, and bills of exchange. Usually notes, acceptances, 
and bills of exchange are certified at Scranton, Pa., on 
the morning of the day they are sent through the clearing 
house. At Waco, Tex., only checks and manager's cer- 
tificates, certified, used in settlement of balances at the 
clearing house, are passed through the exchanges. - 

In the exchanges at Washington, D. C, all checks may 
be cleared and all sight drafts, certificates of deposit, 
matured acceptances payable at the bank, and any 



50 



Clearing-House Methods 

other matter certified or specially agreed upon, until 
notice is given to the contrary; but promissory notes 
can not pass through the exchanges unless certified or 
authorized by the member bank where the same are pay- 
able. The rule at Youngstown, Ohio, is that only items 
which on their face are unconditional demands upon a 
bank are payable through the clearing house. 

The question of restricted indorsements has been 
widely discussed in recent years, and as a measure of self- 
protection most of the large clearing houses have adopted 
resolutions declaring that items bearing restricted in- 
dorsements, such as "For collection," ''For account of," 
"For credit of," and "For deposit," shall be considered 
as improper matter for clearing unless specially guaran- 
teed by the clearing bank. Items indorsed in blank, or 

" Pay to the order of ," or " Pay to or order," 

are not regarded as bearing restricted indorsements. 

Each bank, before sending its exchanges through the 
clearing house, is required to indorse them with its num- 
ber and the words " Received payment through the 

clearing house," or such other indorsement as the clearing- 
house committee or the association may determine upon. 
Evidently it would require a prodigious amount of labor 
to write the indorsements upon the items, and, indeed, it 
would be a physical impossibility in many of the banks 
of the large cities to do so. Hence an ofiicial stamp is 
used, and the same is usually accepted as a guaranty of 
all previous indorsements, whether written or stamped. 
It is not construed as supplying or guaranteeing to supply 
a missing indorsement. 



51 



National Monetary Commission 

The number of messengers required to transport the 
exchanges to and from the clearing house varies widely 
in different cities. When the business is light, as in some 
of the smaller cities, one person acts as both messenger 
and settling clerk, while in some of the larger cities the 
exchanges of some of the banks are so heavy that four 
or fiYe messengers are necessary to transport them. Each 
bank, in addition, is represented by one settling clerk, 
who, as a rule, is a young man, quick and accurate in 
arithmetical calculations. 

Checks are taken to the clearing house bound to- 
gether with rubber bands or inclosed in large envelopes, 
the items that go to each of the members being kept 
separate. If the bulk is not too great, they are often 
carried in the hand, but it is customary in the large 
cities to transport them in leather bags or cases. 

The usual rule is that immediately upon his arrival 
at the clearing house the settling clerk delivers to the 
manager, or the assistant manager, a ticket containing 
the amount of the items brought from his bank. An 
exception to this rule, in a large clearing house, is found 
at Baltimore, where the clerks, instead of delivering 
tickets, call off the amounts to the manager, while he 
enters them upon his proof sheet. An important exception 
is also found at Cincinnati, where no entries of any kind 
are made by the manager upon his settling sheet until 
the proof has been made. This done, the clerks report 
their credit and debit balances, and these alone are 
entered. 



52 



Clearing-House Methods 

Before the exchanges begin at West Superior, Wis., 
there is a roll call of clerks. The only advantage in this 
unusual procedure would be the detection of the absence 
of a member, and as this must necessarily appear before 
the exchanges are completed, it would seem to be an 
unnecessary expenditure of time. 

At South Bend, Ind., a half hour before clearing time, 
the manager telephones to each of the members, of which 
there are eight, and requests from them the total of their 
credits for the day and the amount which they hold on 
each of the other banks. The figures so secured are 
entered upon special sheets, and the debit and credit 
balances are computed. The debits are then arbitrarily 
distributed to credits, and the debtor banks are informed 
by telephone how much they must pay and to whom 
they must pay it. When, therefore, the messengers 
come to the clearing house, they have only to exchange 
their checks and pay envelopes and return. 

A fine is usually imposed upon a member for being 
late at the clearings, and if the representative fails to 
appear before a specified time, the member is excluded 
from the exchanges of the day, and must make its clear- 
ings at the counters of the other banks. The fines com- 
monly vary from $i to $5, but at Chicago, Milwaukee, 
and Minneapolis they are unusually high. For the first 
five minutes or part thereof, the fine in those cities is $3 ; 
for the second five minutes or part thereof, $10; and 
over ten minutes late, $25. 

Two methods of delivering items in the exchange 
room are in vogue. In the one case they are delivered 



53 



National Monetary Commissio 



n 



by all the clerks simultaneously; in the other by each 
clerk as soon as he arrives at the clearing room; but 
the exchanges must all be made before a specified time. 

When the clerks begin the exchanges at the same 
time they all start upon the signal from the manager, 
with their items on their arms or in bags or cases strapped 
over the back, and proceed in the same direction, passing 
along the desks until they have deposited all their paper. 
In the large cities, where the clerks are numerous, order 
and method are necessary in delivery to prevent confusion 
and to save time. But in small cities, where the clerks 
usually deliver their items as soon as they arrive, more 
liberty is allowed in personal conduct; also by this 
method an opportunity is afforded to the less proficient 
clerks to arrive early and list their items as fast as they 
are delivered to them from the other banks. 

Where the exchanges are made around a table, without 
any network or division of any kind between the clerks, 
it sometimes happens that bundles of items, thrown 
carelessly on the table, are entered by the wrong clerk. 
To prevent errors of this character, at Cincinnati, four 
different colors are used for slips containing lists of items 
and attached to the exterior of the bundles, all the slips 
on the bundles going to a particular bank being the same 
color. Thus, clerks representing members Nos. i, 2, 3, 
and 4, sitting alongside of one another at the table, have 
different colored slips, and the same colors are used, 
correspondingly, by members Nos. 5, 6, 7, and 8, and so 
on around the table. Also the debit and credit slips 
brought by the settling clerks are of different colors. 



54 



Clearing-House Methods 

The speed with which the business of a clearing house 
is transacted seems ahnost incredible. The actual time 
required to make the exchanges varies from one and one- 
half minutes to ten minutes. When the exchanges are 
made simultaneously, the time varies, as a rule, in propor- 
tion to the number of members. In view of the shortness 
of time required to make its exchanges, the New York 
Clearing House affords, perhaps, the best example in ex- 
istence of the success of modern business methods as com- 
pared with the old way of doing things. The clearances 
exceed on the average $300,000,000, and yet this enormous 
amount of paper is exchanged between the banks in ten 
minutes, and often in less time. 

When the clearings have been made, the next step is for 
each settling clerk to determine the amount of the balance 
of his own bank, which is found by taking the difference 
between the amount brought to the clearing house and the 
amount taken away. There is practically no exception 
to this rule. A certain amount of time is allowed for the 
proof, and for each error remaining undiscovered at the 
expiration of the allotted time a fine is usually imposed. 
At the end of a certain time thereafter it may be doubled, 
and still later it is often quadrupled. 

In some cases the settling clerks do not remain until the 
proof is made, but leave for their respective banks as soon 
as they make out their tickets for the amounts brought, 
amounts received, and balances. If the manager, or his 
assistant in charge of the proof sheet, finds, after he has 
made all the entries and additions, that his work does not 
prove, he first determines whether the error was made by 



55 



National Monetary Commission 

one of the settling clerks or by himself. If by one of the 
clerks, it is usually discovered in a short time at the bank, 
whereupon the latter reports the error to the manager at 
the clearing house either by messenger or by telephone. 
If the bank fails to report the error in due time, the man- 
ager takes the debit and credit slips and finds it. 

At Cincinnati no fine is imposed upon a clerk or his bank 
for an error in a slip if it is discovered and reported promptly 
to the manager. At Louisville, however, a fine of $i is im- 
posed, without regard to time limitations. 

All that has been said thus far applies to those clearing 
houses that clear only once a day. But there are in the 
United States several clearing houses that make practically 
two clearings a day, in which latter class are Fall River, 
Mass., Detroit, Mich., and Los Angeles, Cal. 

At Fall River, Mass., an amendment was made to the 
constitution May 27, 1895, as follows: 

The cashier of the clearing house shall be the manager of the clearing 
house, and the settling clerks shall be under his direction while at the clear- 
ing house. An exchange of checks and other items for clearing shall be 
made daily at 10.30 o'clock a. m. and the final clearing at 1.30 p. m. The 
debtor members shall pay to the manager of the clearing house the bal- 
ances against them by 2 o'clock p. m., and on or before 2.15 o'clock p. m. 
the creditor members shall receive the respective balances due them. 

The first clearing at Fall River is made at 10.30 o'clock 
in order that the bookkeepers at the banks may have most 
of the checks for entry as soon as possible. This is simply 
an exchange of checks, notes, and drafts payable at the 
bank, and they are thus placed at the bank where they are 
payable before noon. The footings of this clearing are 
carried on the various slips to the second clearing at 1.30 
o'clock, when balances are settled. This has been the 
custom ever since the inauguration of the clearing house. 

56 



Clear in g-House Methods 

At Detroit the preliminary clearing takes place at 10.30 
o'clock a. m. (on Saturdays at 9.30 o'clock a. m.). At 
this clearing principally checks are exchanged. Later, at 
2.30 o'clock in the afternoon, the final exchange takes 
place, which includes the exchangeable matter received up 
to that time. The Los Angeles clearing-house banks meet 
preliminarily at 9.15 o'clock in the morning and make their 
final clearings at 11.30 o'clock. 



>0040— 10 5 57 



Chapter VIII. 

CLEARING COUNTRY CHECKS. 

THE GROWING USE OF CHECKS — THE DiFFlCUIvTY OF COUN- 
TRY CHECKS — REMEDIES PROPOSED — STATE AND NA- 
TIONAL CIvEARING HOUSES — THE KANSAS CITY, MO., 
PLAN — THE ATLANTA, GA., PLAN. 

The use of bank checks and drafts in business transac- 
tions in the United States is more extensive than in any- 
other country, and the tendency to such use is constantly 
on the increase. So popular have checks and drafts 
become that the increase has more than kept pace with 
the increase in business, which means that the proportion 
of money in use to the volume of business transactions 
has been on the decline. 

The introduction of the clearing-house system has 
greatly facilitated the use of substitutes for money by 
furnishing a much safer, more convenient, and more 
expeditious method among banks than previously existed 
of exchanging items drawn on each other and settling the 
balances resulting from the same. With but two excep- 
tions, to be explained in another place, the exchanges 
passing through the clearing house are confined to items 
drawn upon members or upon nonmembers clearing 
through members. That is to say, checks and drafts 
received by a bank member of a clearing house in any 

58 



C I e a r i n 2 - H u s e Methods 

city drawn upon another member of the same clearing 
house, from whatever source the checks may have been 
received, are Hquidated through the clearing house; but 
checks and drafts received by a member of a clearing 
house drawn upon some bank located at a distance, and 
not a member, nor clearing through a member, are re- 
garded as improper matter for clearing. 

Now it is evident that a bank receives from its customers 
in the daily course of business checks drawn on banks in 
distant towns and cities, but before a bank can reahze 
any return from such checks it must collect them. That 
is, it must send them to the banks upon which they are 
drawn, or to some near-by bank, which will act as its 
agent, for payment. There could be no objection on the 
part of the banks to such business methods if the cus- 
tomers depositing such items did not expect credit therefor 
until they were collected and if they were willing to pay 
for the trouble and expense of collection. 

When A, who lives at a distance from a financial center^ 
buys a bill of goods from B, living in the city, and sends 
a check drawn on his local bank for payment of the 
amount, he subjects some one to the expense of collecting 
the check, and, further, some one is out the use of the 
money until the collection has been made. B deposits 
the check in his bank in the city and expects immediate 
credit therefor, and the competition among the financial 
institutions in the larger cities is so keen that the bank 
does not stand upon its rights and insist that the check 
shall be held for collection and credited to B's account 
only when collected, but passes it to his credit at once. 



59 



National Monetary Commission 

through fear that he will withdraw his account and de- 
posit with some other bank that will extend that accom- 
modation to him. This practice is quite general. 

During the past few years great strides have been 
made by the clearing houses throughout the country in 
the matter of establishing uniform rates for the collection 
of country checks, and at the present time there are few 
associations in the United States that have not some sort 
of a schedule for this purpose, however crude it may be. 

The question has been asked, "Why is it that bankers 
can not find a way out of ^this difficulty through a state 
or national clearing house? Since it is universally recog- 
nized that the clearing house has been a uniform success 
in all of the leading cities of the country, not only as a 
medium for the exchange of items, but also as a means 
of bringing about harmonious action among the banks on 
nearly all questions of mutual concern, why is not a 
national clearing house feasible?" 

In bankers' conventions and in current bank literature, 
particularly in the last decade, many remedies have been 
proposed for the difficulty that must be met. In States 
where the bank associations are divided upon the group 
plan many have favored a clearing house for the banks 
of each group. Others have preferred a clearing house 
for the banks of all the groups of the State. 

Some years ago it was proposed that a clearing house 
or collection agency should be established in New York 
City for all the banks east of Chicago. About the same 
time a scheme was set forth for the establishment of a 
clearing house at Chicago for alLthe country banks within 



60 



Clearing-House Methods 

a radius of 500 miles, and for all others that might desire 
to avail themselves of its facilities. But neither of these 
plans was carried into execution. However, several at- 
tempts have been put into practical operation to clear 
country collections, to two of which we shall give atten- 
tion in this chapter, viz, that in operation at Kansas City, 
Mo., for handling cash items drawn on banks in the States 
of Missouri, Kansas, and Oklahoma, and the plan which 
has only recently become operative at Atlanta, Ga., to 
collect country checks on the State of Georgia. 

The bankers of Kansas City, by cooperating through 
the medium of the clearing house, were enabled, some 
time since, to carry into execution a plan for clearing 
country collections in the States of Missouri, Kansas, and 
Oklahoma. This department (called the country col- 
lection department), as at present existing, is maintained 
by the Clearing House Association for the purpose of col- 
lecting such items payable outside of Kansas City as the 
clearing-house committee may deem it advisable to re- 
ceive for that purpose. The manager of the clearing 
house, from time to time, informs the members of the 
association of points upon which the department is pre- 
pared to collect, and also of the cost to the department 
for making such collections, and all the members of the 
association are required to collect through the country 
collection department all items upon which such members 
would incur an exchange cost of 10 cents per $100 or 
more, except items on points at which are located banks 
carrying deposit accounts with such members. 



61 



National Monetary Commission 

Upon receipt of items from any member, the manager 
of the department issues a due bill to such member, 
payable in accordance with the regulations of the Clear- 
ing House Association, from time to time, usually on the 
fourth day after issue. 

The expense of making these collections is met by 
each member paying the exact amount of exchange 
incurred in the handling of such items by the depart- 
ment for such member. Other expenses are apportioned 
among the members in ratio to the aggregate amount of 
items handled for the respective members by the depart- 
ment. 

Along these same lines, although differing materially 
in the method of handling, an arrangement has been 
recently consummated in Atlanta, contemplating the 
clearing of cash items drawn on banks in the State of 
Georgia, and so far as it has been tried out has been de- 
clared eminently satisfactory. 

The members of the clearing house handle this class of 
business the same as they do the city clearings, viz, a 
machine list of checks is retained by the banks and a 
proof list goes with the checks to the clearing house. 
Checks must be sent to the clearing house in the morning 
as early as possible, but in no case later than 10.30 o'clock, 
and the afternoon checks not later than one hour after 
closing time. 

The clearing house issues a receipt covering all items 
deposited for collection, which receipt is payable at a 
later date, the exact time of which is determined by the 
length of time it takes to collect the items. In order to 



62 



Clearing-House Methods 

settle for these receipts, the "Foreign department of the 
clearing house" is a member of the clearing house, just as 
each of the banks are members, and the receipts held by 
the banks are listed against it on their due dates. 

The clearing house, in turn, lists to the different banks 
such items as it receives drawn on them, and prorates 
such other checks as it receives in payment of collections. 
In order to settle each day in full for all outstanding re- 
ceipts, the clearing house charges back to the banks their 
pro rata of the uncollected items. The receipt given 
therefor is payable the following day through the city 
clearing house, the same as other receipts for collections. 

Of course the associations in each of these instances 
have been obliged to increase their clerical force, but as 
this increased expense falls upon the individual members, 
and they, in turn, are thereby enabled to reduce their 
working staff of clerks, as well as effect what amounts to a 
considerable saving in the course of a year in stationery, 
postage, and the cost of collection, they can well afford 
to pay the increased assessment to the association. 

The plan which is in operation in Boston is a further 
instance, and will be found described in detail in another 
part of this volume. 



63 



Chapter IX. 

TYPICAL JOURNEY OF A COUNTRY CHECK REMITTED FOR 
A CITY ACCOUNT. 

THE SMAI^I^ AMOUNT OF WORK REQUIRED OF PAYER AND 
PAYEE — THE I^ARGE AMOUNT OF WORK REQUIRED OF 
THE BANK IN WHICH THE CHECK IS DEPOSITED AND ITS 
CORRESPONDENT — WHAT THE RECEIVING BANK DOES — 
WHAT ITS REGUI^AR CORRESPONDENT IN THE CITY NEAR- 
EST THE COUNTRY BANK IS REQUIRED TO DO — WHAT 
THE COUNTRY BANK HAS TO DO — AN II^I^USTRATIVE 
EXAMPLE. 

By way of emphasizing the need of the reform that has 
taken place in the matter of coUecting checks, a brief 
glance of the methods current in various directions, at the 
present time will- be advantageous. A merchant in Mas- 
sillon, Ohio, buys a bill of goods in New York amounting 
to $250, and pays for the same with a check on his local 
bank. The New York jobber from whom the goods were 
bought makes the proper entries on his books for the check 
upon its receipt by him, and deposits the check with his 
(New York) bank. The receiving teller of the bank in 
which the check is deposited, after checking it off the 
deposit slip, enters it, by amount only, in his record of 
out-of-town checks. 

Another clerk enters the check on a sheet headed with 
the depositor's name, stating date of deposit, place of 



64 



Clearing-House Methods 

payment, and amount, for the purpose of making the 
proper charge thereon. The sHp is sent to the jobber 
advising him of the charge. The charge itself is made 
through a book known as the " Debits of exchange," from 
which the bookkeeper posts the charge. 

A representative of the corresponding department of 
the bank receipts for the item on the receiving teUer's 
record, after satisfying himself that the amount has been 
properly listed thereon. Another representative sorts the 
check with others on a sorting table, according to the place 
of payment, and then stamps the bank's indorsement on 
the back of the check. 

The check is then laid on the collection inclosure sheet 
for transmittal to a Cleveland bank, since all Massillon 
items are collected through that channel by this particular 
New York bank. The check is next listed by billing 
machine in duplicate on the remittance letter, which calls 
for the name of the drawer, place of payment, and amount, 
together with any instructions that are to accompany the 
item regarding the handling of the same. The duplicate 
of this letter, which, in addition to the information called 
for by the original, provides a column under which is 
entered the name of the customer for account of whom 
the check is received, is retained by the bank as its record 
of checks sent. 

After all these details have been completed, the name of 
the Cleveland bank is filled in on the indorsement stamp. 
A record is then made on the letter register, showing the 
name of the Cleveland bank, date when the collection 
letter is sent, and the total amount of the items contained 



65 



National Monetary Commission 

in the letter. This record is made in order that the work 
of the bank may be facihtated in keeping track of its 
remittances, so that should an acknowledgment of the 
same not be promptly received, a tracer may be sent out 
without delay to secure the desired information. Mani- 
festly, it is essential to the bank to know that all letters 
containing inclosures are promptly and properly acknowl- 
edged. An envelope is then addressed, the letter folded 
and inclosed, the envelope sealed and stamped, and finally 
examined to see that it is properly addressed, sealed, and 
stamped. The letter is then mailed at the New York 
post-office. 

The Cleveland bank, on receipt of this letter, enters in 
detail upon its books those items contained in it which are 
payable outside of Cleveland. It then writes a letter to 
its Massillon correspondent, inclosing the $250 check for 
collection, makes a record of the letter and inclosure, 
addresses an envelope, in which are placed the letter and 
inclosure, and seals, stamps, and mails the letter. 

The Cleveland bank next acknowledges the receipt of 
the item by drawing and remitting a check on its New 
York correspondent for the amount, less the usual charge 
for exchange. It writes a letter inclosing the check, takes 
a record of the same, addresses an envelope, puts in the 
inclosures, then seals, stamps, and mails the letter. 

The check thus received by the New York bank is 
checked off the remittance letter, is stamped with the paid 
stamp of the collecting bank, is listed upon a slip with the 
other items received by the bank the same day upon the 
other New York bank on which the check received by it 



66 



Clearing-House Methods 

is drawn. The items thus made up are collected through 
the clearing house. The paying bank checks off the items 
paid through the clearing house froin the slip on which 
they are listed, examines the check in question to see that 
it is properly drawn, dated, and signed, and that the signa- 
ture is genuine, charges the check to the Cleveland bank's 
account on its books, cancels it, enters it on a voucher list, 
and at the end of a given period returns the check with 
others to the Cleveland bank. 

The Cleveland bank, upon receiving its account current, 
voucher list, and canceled vouchers, immediately checks 
off the vouchers and verifies the statement of account. 
It then compares the checks with the stubs in the check 
book, and examines the checks themselves to ascertain 
if the indorsements are correct or if any alterations have 
been made thereon, and at last files the checks away for 
future reference, including the one that has been used in 
the particular case under consideration. 

The letter from the Cleveland bank to Massillon con- 
taining the item is mailed the same day that the check 
is received from New York. It is received in Massillon 
the day following. After carefully examining the check 
to see that it is properly drawn and dated and that the 
signature is genuine, the Massillon bank charges the check 
to its customer's account and then draws its check on 
Cleveland, less the usual charge for exchange in payment 
of the same. It next writes a letter, inclosing the check, 
takes a record of the same, addresses an envelope, puts 
in the inclosures, and then seals, stamps, and mails the 
letter. 



67 



National Monetary Commission 

The customer in due course has his account made up, 
checks off the canceled checks returned by the bank 
from the voucher hst, compares the checks with the stubs 
in his check book, examines the checks to ascertain if the 
indorsements are correct or if any aherations have been 
made, and finaUy files them away for future reference. 

The Cleveland bank, upon the receipt of the remittance 
from its Massillon correspondent, completes its records 
by filling in the date of the receipt of the remittance and 
the amount of exchange charged by the Massillon bank. 

The check thus received is listed by the Cleveland bank 
upon a slip containing all the items received by it the 
same day upon the other Cleveland bank on which the 
check is drawn. The items thus made up are then col- 
lected through the clearing house. The paying bank 
checks off the items paid through the clearing house from 
the slip on which they are listed, examines the check in 
question to see that it is properly drawn, dated, and signed, 
and that the signature is genuine, charges the check to 
the Massillon bank's account on its books, cancels the 
check, enters it on the voucher list, and at the end of a 
given period returns the check to its correspondent, the 
Massillon bank. 

The Massillon bank, upon receiving its account current, 
voucher list, and canceled checks from the Cleveland 
bank, immediately verifies the statement of account, 
compares the checks with the stubs in the check book, and 
examines the checks themselves to ascertain if the indorse- 
ments are correct or if any alterations have been made in 
them, and, finally, files the checks away for future reference. 



68 



CI 



earing- 



. Ho 



use 



Methods 




69 



National Monetary Commission 

In order to effect the collection of the aforementioned 
check, drawn on a country bank and remitted to New 
York in payment of an account, two checks had to be 
drawn, four letters had to be written, 8 cents in post- 
age stamps were used, and seventy-five or more handlings 
of the check were involved by a score or so of clerks, in 
five different banks, located in three different cities. 

Lest the picture should seem to be overdrawn — for, in 
fact, that which has been presented is only an average 
case — the following account of the actual travels of a 
check, of much smaller size and drawn upon a bank much 
nearer New York than Massillon, is submitted. It is illus- 
trated by a reduced facsimile of the check itself and the 
indorsements that it received in transit. 

The check, which was for $43.56, was drawn by Wood- 
ward Brothers, of Sag Harbor, N. Y., and paid to Berry, 
Lohman & Rasch, of Hoboken, N. J., who deposited it in 
the Second National Bank of Hoboken. This bank sent 
it to Harvey Fisk 82: Sons, of New York, who, having no 
regular correspondent in the neighborhood of the bank 
on which it was drawn, sent it, along with other collec- 
tions, to their Boston correspondent, the Globe National 
Bank. The Globe National Bank of Boston, for reasons 
that are not apparent, sent it, presumably with other 
items, to its correspondent at Tonawanda, N. Y., viz, the 
First National Bank of that city. The Tonawanda bank, 
evidently realizing that the check had wandered far out 
of its course, and in an effort to get it nearer home, trans- 
mitted it to the National Exchange Bank of Albany, 



70 



Clearing-House Methods 




71 



National Monetary Commissio 



n 



which institution, pursuing the same commendable poHcy, 
remitted it to its correspondent at Port Jefferson. The 
I^irst National Bank of Port Jefferson, which thus got 
possession of the check, again diverted its course by 
inclosing it to the Far Rockaway Bank. The Far Rock- 
away Bank sent it back to New York, to the ChaseNational 
Bank, and thus this much-traveled check made its second 
call in the metropolis. The Chase National Bank, it 
would appear, endeavored to correct the wanderer's 
course, and so dispatched it to Riverhead, to H. M. 
Reeve. Mr. Reeve, either because he really knew where 
to send it for collection, or because of a lucky hit, for- 
warded it to the Queens County Bank of Brooklyn, which 
finally sent it home to the Peconic Bank of Sag Harbor, 
on which it was drawn. 

The reason why banks forward checks in this apparently 
unreasonable way, often getting the items far out of their 
regular course, is easy to explain. It sometimes appears 
cheaper to the bank which has the check in hand to inclose 
it with other items to some regular correspondent, which, 
assumedly, is nearer the bank on which the check is drawn 
than to hunt up a special correspondent for it alone. 
Once started, the poor check gets pushed along from station 
to station, on its erratic course, until such time as, by 
accident or otherwise, it finds its final lodgment. 

The reader may estimate for himself the volume of 
correspondence which this one check caused, from the 
time it was drawn by Woodward Brothers until it was 
paid by the Peconic Bank, and the amount of postage 



72 



Clearing-House Methods 



p 



0^ POffT 



"SOjy. 



4. 



JEFFi^ 



'SOU 



'°rsen 



fs/jt 



Caa 



^ranteea 



i(sin 









Boston, or order. 






\o 



-iW^' 



'h. M. REEVt: 



-EVL.j 

^"^nk of /Jot;oJ(€n^ 
vfei'h^KM' 






PAYl^Tb^O®EROF 



.™.T@l;ST^CO.^ • 



.^;1Y iiA iS" --c^ -.. 

BANKER ^ r^ST CO 



The 5ec 

" OF HOBOKEW. 
PRIOR ENl>OR5EMENT^^^CUA^!^Nfe'ED ' 

ray Any National or Stats Bank. 

OR ORDER. 

GLOBE NATl BAHK. BOSTON 



Fac-simile of the Back of the 
Check, Showing the Numerous 
Indorsements it bore on Finally 
Reaching the Bank on which it 
WAS Drawn. 



20040 — JO- 



TS 



National Monetary Commission 

and cost of clerical work expended upon it. No better 
argument than the facts here presented is needed to sup- 
port the proposition of charging a reasonable sum for 
collecting out-of-town checks. No better illustration 
than this could be presented to the business man for 
demonstrating to him the weight of the burden he puts 
on the banking machinery of the community by remitting 
r his check on a country bank, in payment of an account, 

instead of purchasing exchange. 



7A 



Chapter X. 
CLEARING-HOUSE LOAN CERTIFICATES. 

WHAT CI^EARING-HOUSE I^OAN CERTIFICATES ARE — ORIGIN — 
INTEREST RATES — USES — FIRST ISSUE IN i860 — THE 
ISSUES OF 1 861, 1863, AND 1864 — ACTION OF VARIOUS 
CI.EARING HOUSES IN 1 8 73 — NEW ORLEANS IN 1 8 79 — 
NEW YORK IN 1884 — ACTION OF THE NEW YORK, BOSTON, 
AND PHII.ADEI/PHIA CIvEARING-HOUSE ASSOCIATIONS IN 
1890 — GENERAIv RESORT TO LOAN CERTIFICATES IN 
1893 — EMERGENCY CIRCULATION IN THE SOUTH, BOS- 
TON, AND PHILADELPHIA IN 1 895 — NEW ORLEANS IN 
1896 — CALCULATIONS OF INTEREST. 

Clearing-house certificates are of two kinds — those 
issued upon the deposit of gold coin (and in New York 
City and Boston on gold and silver certificates and legal 
tender notes) and those issued upon the deposit of col- 
lateral securities. The former are employed in ordinary 
times solely as a method of economizing time and labor 
and reducing risk in handling large sums of money. The 
latter are employed in times of financial disturbance or 
panic, and although both are intended for use solely in the 
settlement of balances at the clearing house, the circum- 
stances that call them forth, the results effected by their 
use, and the part they play in banking economy have little 
or nothing in common. The certificates issued upon the 
deposit of gold, etc., are termed ''Clearing-house certifi- 
cates," and those issued upon the deposit of collateral 



75 



National Monetary Commission 

security are very properly termed "Clearing-house loan 
certificates," with which latter only are we here concerned. 

Clearing-house loan certificates may be defined as 
temporary loans made by the banks associated together 
as a clearing-house association, to the members thereof, 
for the purpose of settling clearing-house balances. Such 
certificates are negotiable, as a rule, only among the mem- 
bers of the association, and are not in any sense to be 
regarded as currency. They are not even seen by the 
business community, and do not pass from bank to bank 
except in payment of clearing-house balances. 

To obtain an intelligent understanding of the real char- 
acter and purpose of such certificates it will be well to 
treat somewhat of the circumstances under which they 
are issued. In the course of the present century the 
United States has undergone periodical derangements of 
business affairs, when confidence was displaced by mis- 
trust, when the payment of debts became difficult, when 
property values declined, and business houses failed; 
when industry and trade were paralyzed, and general stag- 
nation ensued in all lines of enterprise. In such tim.es 
depositors in banks, stricken with fear and sometimes 
pressed by need, draw out their deposits, in many cases to 
such an extent as to render it difficult or even impossible 
for the banks to contract their loans sufficiently to meet 
the demands thus made upon them. Under our present 
currency system no adequate method is provided for 
expanding the money volume as occasion demands, 
whereby the banks can continue their usual loans and 
discounts, and thus prevent a panic with all its evil con- 



76 



Clearing-House Methods 

sequences. Hence it is left in a large measure to the 
financiers of each community to work out their own 
remedy, supplemented by such mutual assistance as a 
courteous regard for each other may dictate or as busi- 
ness relations may demand. 

Quick to see the defects in our currency system, and 
the desirability of in some way supplying it, the bankers 
of New York, nearly fifty years ago, devised the scheme 
of issuing clearing-house loan certificates as a method of 
relief from temporary stringencies. Subsequently, nearly 
all the clearing houses in the great centers adopted the 
same device, and by their heroic resort to the measure 
they have at different times relieved the business commu- 
nity of untold disaster, for which invaluable service they 
have justly received the grateful recognition of the entire 
country. 

The great value of clearing-house loan certificates lies 
in the fact that they take the place of money in settle- 
ments at the clearing house, and hence save the use of so 
much actual cash, leaving the amount to be used by the 
banks in making loans and discounts, and in meeting 
other obligations. The volume of currency, to all intents 
and purposes, is expanded by this means to the full amount 
of the certificates issued. 

The loan certificates are taken out by the clearing-house 
members through loan committees, specially appointed, 
and are used, as a rule, only in the payment of balances 
among the associated banks. Thus, when the stringency 
in the money market seems sufficient to demand it, the 
clearing-house association meets and appoints a commit- 



77 



National M o n et ar y Commission 

tee called the "loan committee," consisting usually of 
five bank officers, to act in concurrence with the president 
of the clearing-house association, who serves ex officio as 
a member. It is the duty of such committee to meet each 
morning at the clearing house and examine the collateral 
offered as security by the banks and issue loan certifi- 
cates thereon, in such denominations and proportions to 
collaterals deposited as may be agreed upon. In the 
history of the past the denominations have varied from 
25 cents to $100,000 in the different associations and in 
proportions varying from $50 to $100 of certificates to 
$100 of collateral deposited. 

These loan certificates bear interest at rates varying from 
5 to 10 per cent per annum, payable by the banks to which 
they are issued to the banks receiving such certificates in 
settlement of daily balances. Hence the interest charged 
against certain banks must exactly equal and offset that 
credited to certain other banks. The aim is to fix the 
rates sufficiently high to insure the retirement of the cer- 
tificates as soon as the emergency which called them forth 
has passed by. As a rule they are retired by the banks, 
which take them out as soon as they have obtained suffi- 
cient cash to meet their daily obligations. Notice is given 
by the debtor banks to the committee, calling for such 
certificates as they wish to retire, and the committee gives 
notice to the banks holding the same, stating that the 
interest will cease after a specified date. In due course 
the holders send the certificates to the clearing house for 
redemption. Upon the retirement of the certificates the 
collateral deposited as security is surrendered by the com- 



78 



Clearing-House Methods 

mittee in the same proportion to certificates turned in as 
was required for deposit at the time of issue. 

It is by no means the general practice for all the mem- 
bers to take out loan certificates when issues are arranged 
by the association. Some banks are in such condition 
as to be able to weather the storm without them, while 
others are weak and in great need of relief. Some banks 
regard their use of clearing-house loan certificates as a 
reflection upon their standing, and hence refuse to apply 
for them unless driven to it by sheer necessity. Others 
regard it as in no way prejudicial to their interests, but 
rather as a patriotic movement in which all the banks 
should engage, both for the purpose of assisting their 
fellow-members and for the welfare of the community as 
a whole. 

The members of the New York Clearing House As- 
sociation especially have distinguished themselves in 
this regard. Up to 1907, when only about 60 per cent 
of the members found it necessary to take out certifi- 
cates, it has been the almost universal rule for all the 
members to take loan certificates whenever the occa- 
sion demanded such action on the part of any of the 
banks, and this, too, without regard to how strong they 
may have been or how easily they might have gotten on 
without using them. In one instance, when a member 
bank refused to share the burden of the associated banks, 
it was suspended from the privileges of the clearing house 
for more than three months. 

The total amount of its balances is not always paid 
in clearing-house loan certificates by a bank to which 



lilij 



National Monetary C ommis s io 



n 



such certificates have been issued. Thus, for exam- 
ple, the debit balance of a given bank may be $500,000, 
which in ordinary times would be paid in money or gold 
certificates. In a time of panic a part of this sum — say, 
$300,000 — is paid in clearing-house loan certificates and 
the remaining $200,000 in currency. Another, with the 
same balance, might pay the whole in clearing-house cer- 
tificates, while still another would pay the full amount 
without the use of any certificates whatsoever. 

The first issue of clearing-house certificates occurred 
in i860. In the autumn of that year there was a rapid 
shrinkage in bank deposits and a corresponding contrac- 
tion in loans and discounts. The situation grew more 
and more serious as the end of the year approached. 
The presidential election was a disturbing factor of more 
than ordinary significance. Immediately succeeding the 
election of Abraham Lincoln to the Presidency the situa- 
tion began to assume a critical aspect. Distrust and un- 
certainty were universally felt. The banks hesitated to 
advance loans, and obtained from their customers as 
rapidly as possible the payment of obligations. Call 
loans commanded 7 per cent, and paper of some of the 
best houses went begging at 24 per cent. In this crisis 
a meeting of the N^w York Clearing House Association 
was called, and the following resolution was passed: 

In order to enable the banks of the city of New York to expand their 
loans and discounts, and also for the purpose of facilitating the settlement 
of the exchanges between the banks, it is proposed that any bank in the 
clearing-house association may, at its option, deposit with a committee 
of five persons — to be appointed for that purpose — an amount of its bills 
receivable, United States stocks. Treasury notes, or stocks of the State of 
New York, to be approved by said committee, who shall be authorized to 
issue thereon to said depositing bank certificates of deposit bearing interest 

80 



Clearing-House Methods 

at 7 per cent per annum in denominations of $5,000 and $io,ooo each, as 
may be desired, to an amount equal to 75 per cent of such deposit. These 
certificates may be used in the settlement of balances at the clearing house 
for a period of thirty days from the date thereof, and they shall be received 
by creditor banks during that period, daily, in the same proportion as they 
bear to the aggregate amount of the debtor balances paid at the clearing 
house. The interest which may accrue on these certificates shall, at the 
expiration of thirty days, be apportioned among the banks which shall 
have held them during the time. 

The securities deposited with said committee, as above named, shall be 
held by them in trust as a special deposit, pledged for the redemption of 
the certificates issued thereupon. 

The committee shall be authorized to exchange any portion of said securi- 
ties for an equal amount of others to be approved by them at the request 
of the depositing bank, and shall have power to demand additional security, 
either by an exchange or an increased amount, at their discretion. 

The amount of certificates which this committee may issue, as above 
stated, shall not exceed $5,000,000.^^ 

This agreement shall be binding upon the clearing-house association 
when assented to by three-fourths of its members. 

Resolved, That in order to accomplish the purpose set forth in this agree- 
ment the specie belonging to the associated banks shall be considered and 
treated as a common fund for mutual aid and protection, and the com- 
mittee shall have the power to equalize the same by assessment or other- 
vase. 

For this purpose statements shall be made to the committee of the con- 
dition of each bank on the morning of every day before the commence- 
ment of business, which shall be sent with the exchanges to the manager 
of the clearing house, specifying the following items, viz: (i) Loans and 
discounts, (2) deposits, (3) loan certificates, (4) specie. 

In accordance with the authority thus given the 
first issue of certificates was made November 23, i860, 
and the beneficial effect was immediately felt. The 
banks rapidly extended their loans, deposits increased, 
and commercial paper, which formerly could not be sold 
for 20 per cent, was now freely marketed at 7 per cent 
and 8 per cent. On December 22 the issue had reached 
its maximum limit, viz, $6,860,000; the aggregate issue, 
$7,375 jooo. The last certificate was canceled March 9, 

a On December 3, i860, it was voted to increase this limit to $10,000,000. 



National Monetary Commission 

1 86 1, and the total period, from the date of the first issue 
to the date of the last issue, was one hundred and six 
days. 

But the relief thus afforded was not destined to be 
permanent. The country was soon plunged into the 
throes of civil war, and, consequently, distrust and 
uncertainty as to the future prevailed universally. Busi- 
ness interests were suspended, trade was hampered, 
and industry was paralyzed. As a result of the pressure 
the association passed a resolution in the following 
September, authorizing another issue of loan certificates, 
and on September 19, 1861, the first issue was made. 
The maximum of $21,960,000 was reached on February 
7, 1862, and, as will be perceived, was more than three 
times as much as the maximum amount outstanding 
at any one time in the preceding year. The total issue 
was $22,585,000, exceeding the previous total issue by 
more than $15,000,000. The rate of interest was 6 per 
cent as compared with 7 per cent in the former year, 
and the collateral used as security consisted of temporary 
receipts of the United States for the purchase of gov- 
ernment bonds, as compared with United States stock, 
Treasury notes, and stocks of the State of New York, 
employed for the same purpose in the preceding issue. 
The last certificates were called April 28, 1862, more than 
seven months from the date of their first issue. 

In 1863 the association issued certificates for the 
third time. The first bore the date of November 6, and 
the largest amount outstanding at any one time was 
$9,608,000, from November 27 to December i. The 



82 



Clearing-House Methods 

total issue was $11,471,000, being a little more than one- 
half of the issue of two years before. Interest was 
charged at 6 per cent, as in 1861, and United States 
or New York State stocks, bonds, etc., or temporary 
receipts, as in 1861, were used as security. The last 
certificates were redeemed February i, 1864, four and 
one-half months from the date of the first issue. 

Owing to the prolongation of the war, with the con- 
sequent unrest in business circles, the issue of certifi- 
cates for the fourth time began March 7, 1864, and 
reached its maximum, $16,418,000, on April 20 of the 
same year, being an excess of nearly $7,000,000 over 
the maximum amount outstanding at any one time 
in the previous year. The aggregate issue was $17,728,000, 
being less than $1,000,000 in excess of the maximum 
amount outstanding at one time. The rate of interest 
was 6 per cent, as in 1861 and 1863, and the certificates 
were secured by the same kind of collateral as those in 
the former issue. The final redemption occurred June 
13, 1864, three and one -half months after the first 
certificates were issued. 

No more loan certificates were issued until the year 
1873, when, for the first time, the clearing-house asso- 
ciations of other cities, seeing their great practical 
utility, began to avail themselves of their use. In the 
year mentioned the association at New York followed 
the precedent established in i860, and the same course 
was taken by the clearing-house associations at Bos- 
ton, Philadelphia, Baltimore, Cincinnati, St. Louis, 
and New Orleans. The panic which called forth such 



83 



National Monetary Co 



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84 



Clearing-House Methods 

united action was one of unusual severity. It reached 
its climax in September, and so severe were its ravages 
that the New York Stock Exchange closed its doors 
on the 2oth of the same month, for an indefinite period, 
but reopened them ten days thereafter. 

The usual resolutions were passed by the clearing- 
house association, authorizing the issue of certificates, 
and on September 22 the first issue was made. The 
amount was fixed at the outset at $10,000,000, which, 
with the announcement that the Government would 
purchase the same amount of bonds, caused an imme- 
diate subsidence of the panic, and in less than three days 
its most acute stages were over. The last issue was 
made on Novemeber 20, a little less than two months 
from the date of the first issue, and the last certificates 
were redeemed January 14 of the following year, the 
period covered from the date of the first issue to the date 
of final cancellation having been less than four months. 
During the two months referred to certificates to the 
amount of $26,565,000 were issued. This was far in 
excess of any previous issue, the nearest approach to 
it having been in 1861, when, as shown before, more than 
$22,000,000 were taken out. The largest amount out- 
standing at any one time was $22,410,000, which occurred 
only eleven days from the date of issue of the first 
certificates. Interest was calculated at 7 per cent, as in 
i860, the rate during the intervening time having been 
6 per cent. Bills receivable, stocks, bonds, and other 
securities were accepted by the committee as collaterals 
for the redemption of these certificates. 



85 



National Monetary Commission 

Attempts on the part of the business community were 
made in vain to discover what banks had taken out 
certificates, but such information was very wisely with- 
held. For more than two months, covering the worst 
period of the panic, no weekly statements of their con- 
dition were made to the clearing house by the banks, 
the object being to prevent a general knowledge of the 
weak condition of some of the members, which condi- 
tion, if disclosed, would invite runs upon them. 

On September 27, 1873, a meeting of the Boston 
association was called, and it was voted to suspend 
currency payments and appoint a loan committee, 
with power to issue loan certificates to the amount of 
$10,000,000, upon substantially the same basis as at 
New York. The issues were duly made, and on October 
20 the amount outstanding reached its maximum of 
approximately $4,800,000. 

In like manner the Philadelphia association now, 
for the first time, entered upon the plan so success- 
fully followed in New York since i860, by appointing 
a loan committee, with authority to issue clearing-house 
loan certificates. Such certificates were authorized by 
resolution adopted September 24, 1873, and amended 
October 18, 1873, to read as follows: 

For the purpose of enabling the banks, members of the Philadelphia 
Clearing House Association, to afford proper assistance to the mercantile 
and manufacturing community, and also to facilitate the inter-bank 
settlements resulting from their daily exchanges, we, the undersigned, 
do bind ourselves by the following agreement on the part of our respec- 
tive banks, namely: 

First. That the clearing-house committee be, and that they are hereby, 
authorized to issue to any bank, member of the association, loan certificates 
bearing 6 per cent interest on the deposits of bills receivable and other 

86 



CI 



earing-House Methods 




COMMITTEE. 



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87 



National Monetary Commission 

securities to such an amount and to such percentage thereof as may in 
their judgment be advisable. These certificates may be used in settle- 
ment of balances at the clearing house, and they shall be received by 
creditor banks in the same proportion as they bear to the aggregate amount 
of the debtor balances paid at the clearing house. The interest that 
may accrue upon these certificates shall be apportioned monthly among 
the banks which shall have held them during that time. 

Second. The securities deposited with the said committee shall be 
held by them in trust as a special deposit, pledged for the redemption 
of the certificates issued thereupon, the same being accepted by the com- 
mittee as collateral security, with the express condition that neither 
the clearing-house association, the clearing-house committee, nor any 
member thereof shall be responsible for any loss on said collaterals arising 
from failure to make demand and protest, or from any other neglect or 
omiSvSion other than the refusal to take some reasonable step which the 
said depositing bank may have previously required in writing. 

Third. On the surrender of such certificates, or any of them, by the 
depositing bank, the committee will indorse the amount as a payment 
on the obligation of said bank held by them, and will surrender a pro- 
portionate amount of securities, except in cases of default of the bank 
in any of its transactions through the clearing house, in which case the 
securities will be applied by the committee, first to the payment of out- 
standing certificates with interest; next to the liquidation of any in- 
debtedness of such bank to the other banks, members of the clearing- 
house association. 

Fourth. The committee shall be authorized to exchange any portion 
of said securities for others, to be approved 'by them, and shall have power 
to demand additional securities at their own discretion. 

Fifth. That the clearing-house committee be authorized to carry into 
full effect this agreement, with power to establish such rules and regu- 
lations for the practical working thereof as they may deem necessary; 
and any loss caused by the nonpayment of loan certificates shall be assessed 
by the committee upon all the banks in the ratio of capital. 

Sixth. The expenses incurred in carrying out this agreement shall be 
assessed upon the banks in equal proportion to their respective capitals. 

Seventh. That the clearing-house committee be and they are hereby 
authorized to terminate this agreement upon giving thirty days' notice 
thereof at any stated meeting of the clearing-house association. 

The issue of certificates made in conformity with the 
foregoing resolution reached the maximum amount out- 
standing at one time, namely, $6,285,000, on December 
I, 1873. 



88 



Clearing-House Methods 

At Baltimore, on September 24, the clearing-house 
association began the issue of certificates, which amounted 
in the aggregate to $1,326,000. The last of these was 
retired January 2, 1874, one hundred days after the date 
of the first issue. 

The first certificates at St. Louis were issued on Sep- 
tember 25, and the last of the certificates were canceled 
forty-six days thereafter, the aggregate amount having 
been $1,472,500. 

At New Orleans the maximum amount outstanding 
($1,067,000) was attained October 10. 

On September 25 the following resolution was adopted 
by the association at Cincinnati : 

Resolved, That for the protection of our commercial interests and for the 
purpose of preventing a drain of currency from the banks and bankers of 
this city, the banks and bankers of Cincinnati do hereby agree to adopt 
substantially the plan adopted in New York City, namely, they will not 
pay out currency on checks, except for small sums, to be optional with the 
banks and bankers on whom they are drawn; but they will certify checks 
drawn on balances in their hands, payable through the clearing house only. 
When such checks are drawn in payment of notes or drafts, the bank hold- 
ing the same shall not be required to deliver said paper until after the 
check in payment has been paid to the clearing house. 

Resolved, That the above resolution be printed, and slips furnished each 
bank and banker. 

Resolved, That the clearing-house association will issue not to exceed 
$2,500,000 in loan certificates, to be used in settling balances between the 
members thereof, and that the same will be furnished to members in the 
proportion of securities put up by each as hereinafter provided. Said cer- 
tificates shall not be negotiable, and shall be used only for the purpose of 
settlement between the banks and bankers in the clearing house. 

Resolved, That members may deposit as a basis of credit in tl^e associa- 
tion the following-described securities, namely, United States bonds, rail- 
road and other bonds, stocks and bills receivable. The United States 
bonds shall be received at their par or face value, and the other securities 
shall be valued by a committee of five, who shall be appointed for that pur- 
pose, and the same shall be received at 75 per cent of the value so fixed. 
Each member shall receive a receipt for the securities deposited. The said 
committee shall have charge of the securities of whatsoever kind deposited 

20040 — 10 7 89 



National Monetary Commission 

by the said banks and bankers, and shall place the same with the safe 
deposit company for safe-keeping, and the said committee shall sit daily 
at the clearing house at the hour for clearing and shall personally supervise 
the issue of the loan certificates in settlement of balances. The said certifi- 
cates shall bear interest at the rate of 81 per cent per annum, which 
interest shall be paid by the banks and bankers using the same and for the 
time so used. 

Resolved, That these proceedings take effect from and after 9 o'clock 
to-day, and are not to affect currency transactions or obligations between 
members prior to this day. 

In the period from September 25, when the issue of cer- 
tificates was authorized, to October 9, when a resolution 
was unanimously adopted in favor of discontinuing their 
issue, a period of only fourteen days, certificates to the 
amount of $515,400 were issued, the last of which were 
canceled just six weeks from the date of first issue. 

The next report of clearing-house loan certificates was 
in 1879, when the New Orleans association alone issued a 
small amount ($54,000) to satisfy conditions of a purely 
local character. 

In 1884 the New York association stood alone in the 
issue of loan certificates. The amount taken out at this 
time was large, and was begun early in the year to prevent 
a widespread and disastrous panic. The first were taken 
out May 15, and reached $21,881,000, their maximum 
amount outstanding, on May 24, only nine days from the 
date of first issue. The last certificates were issued June 
6, and the last were retired September 23, more than four 
months from the date on which the issue was begun. 
The total amount was $24,915,000, being in excess of any 
previous issue except that of 1873. The rate of interest 
was fixed at 6 per cent, the same as in 1861 , 1863, and 1864, 
and, as security for the redemption of such certificates, bills 



90 



Clearing-House Methods 

receivable, stocks, bonds, and other securities were em- 
ployed. 

For the next six years the country was free from any 
unusual financial disturbances, and hence no occasion 
arose for extraordinary measures. Finally, however, in 
1890, came another period of pressure. Up to midsummer 
of that year the country had experienced unusual pros- 
perity, but to the observing eye it was apparent that deep- 
seated forces were at work which would ultimately cause 
a widespread disturbance in business and financial circles, 
if not bring about a disastrous panic. This was evident 
from consideration of the unsatisfactory conditions pre- 
vailing in agriculture and from the unwholesome tendency 
to overtrading and expansion on every hand. The exten- 
sion of railroads had been prosecuted throughout the year 
with more than ordinary vigor, which required the exten- 
sion of large sums of money upon security. Early in the 
year the deposits in the banks of New York City began to 
fall off, and by May 17 the shrinkage had amounted to 
more than $44,831,000, of which over $13,500,000 con- 
sisted of balances drawn out by banks in the interior and 
in other reserve cities. Boston and Philadelphia were also 
subjected to heavy drains. After careful consideration, it 
was decided in each of these three cities to resort to the- 
issue of clearing-house loan certificates, to be used in the 
settlement of clearing-house balances. New York was 
the first to take action, and on November 1 1 , "at a meeting 
of the association, the following resolution w^as imani- 
mously adopted: 

Resolved, That a committee of five be appointed by the chair, of which the 
chairman shall be one, to receive from banks, members of the association, 

91 



National Monetary Commission 

bills receivable and other securities to be approved by said committee, who 
shall be authorized to issue therefor to such depositing banks, loan certifi- 
cates bearing interest at 6 per cent per annum, and, in addition thereto, a 
commission of one-quarter of i per cent for every thirty days such certifi- 
cates shall remain unpaid, and such loan certificates shall not be in excess 
of 75 per cent of the market value of the securities or bills receivable so de- 
posited, and such certificates shall be received and paid in settlement of bal- 
ances at the clearing house. 

In pursuance of the authority thus granted, the com- 
mittee of five was duly appointed, and they proceeded to 
issue to applying banks loan certificates in form substan- 
tially the same as that employed in 1873 — elsewhere illus- 
trated — which, in fact, with the exception of the limitation 
of time, is the form standard with this association. 

The first certificates were issued November 12, 1890, and 
the issue ceased December 22, amounting in the aggregate 
to $16,645,000; the largest amount outstanding at any one 
time was $15,205,000, on December 12, and the last cer- 
tificates were retired February 7, 1891, less than three 
months from the date of first issue. In order to provide 
for the retirement of these certificates, in case the collateral 
should be found insufficient, the boards of directors of the 
several associated banks passed the following resolution : 

Resolved, That any loss resulting from the issue of loan certificates shall 
be borne by the banks comprising the clearing house association, pro rata to 
capital and surplus, and this resolution shall be ratified by the boards of the 
respective banks, members of the association, and a certified copy of such 
consent delivered to the chairman of the loan committee. 

On November 27, five days after special action was 
begun by the clearing-house association of New York, the 
clearing-house association at Boston entered upon a similar 
course, by passing the following resolution: 

Resolved, That a committee of five be appointed by the chair, of which 
committee the chairman also shall be a member, to receive from banks, 
members of the association, bills receivable, and other securities, to be 

92 



Clear ing-'House Methods 

approved by said committee, who shall be authorized to issue therefor, to 
such depositing banks, loan certificates bearing interest at 7.3 per cent per 
annum, and such loan certificates shall not be in excess of 75 per cent of 
the market value of the securities or bills receivable so deposited, and such 
certificates shall be received and paid in settlement of balances at the 
clearing house. 

It is worthy of remark that the basis upon which the 
payment of any loss arising from the issue of loan certifi- 
cates differed from that at New York, in that in the one 
case it was required to be paid by the banks in proportion 
to capital and surplus, and in the other in proportion to the 
average daily amount of exchanges which each bank had 
sent to the clearing house during the preceding year. The 
resolution bearing upon this point, adopted at Boston, 
was as follows: 

Resolved, That any loss arising from the issue of loan certificates shall be 
borne by the banks comprising the clearing-house association pro rata 
according to the average daily amount which each bank shall have sent to 
the clearing house during the preceding year. 

It was also voted that this resolution should be ratified 
by the boards of directors of the respective banks, mem- 
bers of the association, and a certified copy of such consent 
delivered to the chairman of the loan committee. 

Upon deposit of securities with the clearing-house com- 
mittee and the receipt of certificates therefor, each bank 
was required to execute and deliver an obligation in the 
following form: 

The Bank has this day received of loan committee of the 

Boston Clearing House Association, loan certificates issued by said com- 
mittee in pursuance of a vote of said association, passed November 17, 1890, 

to the amount of thousand dollars, and has deposited with said 

committee the securities, a statement whereof is hereto annexed, and said 

bank has received said loan certificates on the terms set forth in 

said vote, and agrees to pay the amount of said certificates, with interest 
thereon, as provided in said vote. 



93 



National Monetary Commission 

The first certificates were taken out November 19, two 
days after the adoption of the resolution authorizing such 
action, and the last were issued December 6, when the 
amount reached its maximum of $5,065,000. The last of 
the issue were finally canceled January 6, 1891, less than 
two months after the first issue. 

On November 18, 1890, similar proceedings were had 
by the clearing-house association of Philadelphia, at which 
time the following resolution was passed : 

Resolved, That in accordance with resolution of September 24, 1873, as 
amended October 18, 1873, the clearing-house committee will issue loan 
certificates to banks applying, and receive them in payment of balances. 

The resolution of September 24, 1873, referred to, has 
already been quoted. On November 1 8 , 1 890, the clearing- 
house committee passed the resolution which had been 
adopted on that day by the clearing-house association, 
afiirming their purpose to issue clearing-house loan certifi- 
cates as in accordance with the resolution of 1873. 

Acting under the authority thus granted, the clearing- 
house committee began the issue of clearing-house cer- 
tificates, and the banks desiring to take them out were 
required to adopt a resolution empowering the hypothe- 
cation of acceptable securities, under which resolution the 
first issue of certificates was made on November 19, 1890, 
and ceased May 22, 1891. The total issue was $9,655,000, 
and the maximum issue ($8,870,000) was reached Jan- 
uary 9, 1 89 1. The certificates were all retired, excepting 
$170,000 issued to the Keystone and Spring Garden 
National Banks, institutions which were carried down in 
the panic. 



94 



Clearing-House Methods 

In 1 89 1 Louisville, Ky., issued loan certificates to a 
small amount, although none were required in the previous 
year, when New York, Boston, and Philadelphia were 
employing them extensively. This clearing house was 
the only one to use certificates that year, and what further 
distinguishes this association is that the issue referred to 
is the only one it had ever made. 

Following the panic of 1890 came a period of prosperity, 
which, to all outward seeming, bore the marks of perma- 
nence, but it was only temporary. The clouds which 
began to appear prior to the advent of the Cleveland 
Administration, grew denser as time advanced, until in 
April, 1893, it was apparent, even to the superficial 
observer, that a storm of unusual severity was approach- 
ing. Reports of failures, as given by commercial agencies, 
showed a rapid increase as the year advanced, and the 
shrinkage in national-bank deposits from May 4 to July 1 2 
exceeded $190,000,000, while the decline in the deposits 
in state and savings banks was no less surprising. By 
June, banks all over the country were being forced to the 
wall. In July 73 national banks failed as compared with 
25 in the preceding month, while the state and private 
banking houses showed a mortality equally alarming. 
By August I a panic of great severity was raging through- 
out the country, and particularly in the great metropolitan 
centers. 

The only avenue of relief provided by the laws was 
the issue of additional national-bank notes, but to 
those familiar with the history of the past it was appar- 
ent that the national banks were bound hand and foot 



95 



National Monetary Commission 

by indiscreet legislation, and were therefore unequal 
to the task of extending the relief so much needed, 
and which, under more favorable laws, might easily 
have been supplied. The situation was aggravated 
in no small degree in the reserve and central reserve 
cities by the urgent demands made for their reserves 
by the banks in the interior. So excessive was the drain 
upon the resources of the banks in some cities that in 
many cases they positively refused to respond to the 
calls of the banks for their reserves unless such call 
was accompanied b}^ the assurance that such assist- 
ance was an urgent necessity. Such action was prompted 
by the fact that in many previous instances packages 
had been returned unbroken after the subsidence of a 
y' panic, showing that the contained amounts had been 

withdrawn through fear of loss rather than through 
the necessity of replenishing reserves. 

In the absence of any legal expedient by which the 
country could escape from the unprecedented condition 
into which it had fallen, it was left to the financiers 
in the great cities and to the great corporations accus- 
tomed to wrestle with panics in times past to work 
out the people's salvation. The remedy that was ap- 
plied affords one of the finest examples the country 
has ever seen of the ability of the people when left to 
themselves to devise impromptu measures for their 
own relief. The most potent factors in staying the force 
of the panic were the clearing-house loan certificates 
^ issued by the clearing-house associations throughout 
the country. 



96 



Clearing-House Methods 



Committee. 




•SHtfnoa aNvsnoHi hau 



97 



National Monetary Commission 

At New York authority was duly given, by resolu- 
tion of the association, for the appointment of a loan 
committee for the issue of such certificates upon the 
hypothecation of acceptable collaterals. Immediately 
upon their appointment, the committee proceeded to 
issue to applying banks loan certificates upon the de- 
posit of proper securities. 

The issue was commenced June 21, 1893, and ceased 
September 6 of the same year, the total issue having 
been $41 ,490,000. The largest amount outstanding at one 
time ($38,280,000) was attained August 20, which amount 
remained unaltered until September 6. The last of the 
certificates was retired November i , more than four months 
from the date of first issue. These certificates bore interest 
at 6 per cent, and were secured by the same kind of col- 
lateral as in 1873, 1884, and 1890. The aggregate amount 
was far in excess of any previous issue. The next largest 
amount was in 1873, the aggregate, it will be remembered, 
having been less than $27,000,000. 

The Boston Clearing House Association by resolu- 
tion authorized a similar course, and on June 27 the 
committee began the issue of certificates in denomina- 
tions of $10,000 and $5,000, respectively, bearing in- 
terest at 7.3 per cent, the same rates as in 1873 ^^^ 1890. 

From August 23 to September i the amount was 
at its maximum — $11,445,000. The aggregate issue 
was $11,645,000, which, it will be observed, is some- 
what in excess of one-quarter of the amount taken out 
at New York. From June 27, when the first issue was 
made, to the end of the period balances were paid at 

98 



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99 



National Monetary C o mmis s io 



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the clearing house with certificates to the extent of 
$43,130,000, which was 38.4 per cent of the total bal- 
ances at the clearing house during the time the cer- 
tificates were used. By far the largest amount of cer- 
tificates was employed in September, and so far as 
single days are concerned the maximum was reached 
September 7 and 9, the amount on each of these days 
having been $1,065,000. By October 21 the certifi- 
cates had all been retired and canceled. 

In pursuance of a resolution of the association at 
Philadelphia, a loan committee was appointed, which 
issued certificates in denominations of $5,000 only, bearing 
interest at 6 per cent, as in 1873 ^^^ 1890. 

The total amount of the issue was $11,470,000, being 
less by only a small amount than the total issue at Boston. 
The largest amount outstanding at any one time was 
$10,965,000 on August 15, all of which was redeemed 
in due time without loss to any of the members. 

At Baltimore certificates in denominations of $1,000, 
$3,000, and $6,000 were issued, bearing interest at 6 
per cent. From August 24 to September 6 the certificates 
outstanding were at their maximum of $1,475,000, all 
of which were ultimately retired and canceled. 

The Clearing House Association at New Orleans followed 
the action at New York as closely as possible. On June 
22 a resolution was unanimously adopted as follows: 

Resolved, That a committee of six banks be appointed by the chair to 
receive from banks, members of the association, bills receivable and other 
securities to be approved by said committee, who shall be authorized to 
issue therefor to such depositing banks loan certificates bearing interest 
at 7 per cent per annum, and such loan certificates shall not be in 
excess of 75 per cent of the market value of the securities or bills receivable 



Clearing-House Methods 

so deposited, the committee reserving the right to call for additional ^ 
security as in their judgment the same is required; and such certificates 
shall be received and paid in settlement of balances resulting from the 
exchanges at the clearing house, and all the rules and regulations heretofore 
adopted in the issue of such certificates shall be in force in the present 
issue. It is expressly agreed and understood that no bank which shall y 
have received certificates shall make any new loans or discounts, but shall 
confine its business to the collection of outstanding loans, until all clearing- 
house certificates shall have been retired. 

Certificates were accordingly issued in denominations 
of $500 to $10,000. On the day of the passage of the above 
resolution it was also 

Resolved, That any members of this association now out of line in their 
reserve shall immediately take steps to put themselves in line, and that 
any members desiring to avail themselves of the use of clearing-house * 
certificates shall not be allowed to increase their line of discounts. 

Also on June 22 the committee addressed to the cashiers 
of the several associated banks the following communica- 
tion: 

The undersigned beg leave to advise you that they have accepted the 
appointment extended to them by the meeting of the associated banks, 
held at the clearing house this day, to act as a loan committee, and that 
as such committee they will meet daily at the clearing house at ii o'clock 
a. m. on and after Thursday, the 2 2d instant, prepared to issue loan certifi- 
cates in accordance with the action adopted by the meeting referred to. 
Banks desiring to receive loan certificates on pledge of bills receivable 
or other securities to be deposited with the committee are requested to 
make application for such certificates at or before 11 o'clock a. m., in the 
form herewith inclosed, to the chairman of the committee at the clearing 
house, with a certified copy of a resolution of the board of directors, in 
the form inclosed, authorizing the deposit and pledge of securities for loan 
'' certificates. You are requested to report daily to the manager of the 
clearing house each morning at 10 o'clock the amount of certificates held V 
by your bank. 

One striking feature of the above communication 
which does not appear in the resolutions and communi- 
cations in other similar associations is that banks are 
referred to as acting in a joint capacity instead of as 



lOI 



National Monetary Commission 






^^Ukl 







Clearing-House Methods 

individuals. Soon after the above action was taken, a 
resolution was passed by the boards of directors of the 
several associated banks as follows: 

Resolved, That the president or cashier be and is hereby authorized and 
empowered to deposit, pledge, or hypothecate with the loan committee of 
the associated banks of New Orleans, United States stocks, bills receivable, 
or other securities belonging to this bank as collateral security for any 
loan or loans made to the said bank by that committee. 

Applications to the loan committee for certificates 
were made by members in form as follows: 

The applies for the issue to them of loan certificates to the amount 

of $ to be secured by the deposit of collateral security as per security 

herewith sent. 

Before taking out loan certificates the several members 
ratified the action of the association in authorizing their 
issue, in the following manner: 

Resolved, That as a member of the New Orleans Clearing House Asso- 
ciation, the action of said association in the matter of issuing clearing-house 
certificates is hereby ratified and confirmed, with all of its provisions. 

To intrench themselves against loss in the event of fail- 
ure on the part of any member of the association taking 
out loan certificates to redeem the same, with the stipu- 
lated interest, each member was required to execute and 
deliver an obligation, of which the following is a copy: 

This certifies that the National Bank of the city of New Orleans 

is indebted to the New Orleans Clearing House Association in the sum of 

dollars, paid by said association to said bank on the faith hereof, 

and in consideration thereof said bank hereby agrees to pay said sum, with 
interest from the date thereof at the rate of 7 per cent per annum, to the 
said association or to its assigns, and said association is hereby authorized, 
through its loan committee or otherwise, to sell at public auction or private 
sale, on three days' notice to said bank, the securities deposited by said 
bank with such association, in accordance with the resolution of such 
association, in pursuance of which this certificate is issued. 



103 



National Monetary Commission 




104 



Clearing-House Methods 

As a further measure of protection to the members in 
the event of any emergency arising not otherwise pro- 
vided for, it was further 

Resolved, That any loss arising from the issue of loan certificates shall be 
borne by the banks comprising the clearing house association, pro rata of 
capital and surplus; and this resolution shall be ratified by the boards of ^'''^ 
the respective banks members of the association, and a certified copy of 
such consent delivered to the chairman of the loan committee. 

In addition to this, a resolution was passed limiting 
the amount of payment by any member of the clearing- ^ 
house association to a single person in any one day to $ioo. 
The largest amount of certificates outstanding at any one 
time was $998,000, covering one week from September 7 
to September 14, all of which were finally retired without 
loss to any member. 

The Cincinnati clearing house likewise issued loan cer- 
tificates in 1893, ^^^ ^^^ form employed at that time is 
given among the illustrations. 

All of the associated banks at Buffalo took out certifi- 
cates in 1893 i^ denominations of $5,000 and $1,000, bear- 
ing interest at 6 to 8 per cent, but they did not all use 
them. The form employed was substantially the same as 
that used at previous dates in New York. The sum total 
of the issue was $985,000, with which balances were set- 
tled to the amount of $2,780,000. In July, 40 per cent 
of the balances were paid with these certificates, and 50 
per cent in August. From July 9 the amount outstand- 
ing reached its maximum, $925,000. 

Only 10 out of 19 members of the clearing-house asso- 
ciation at Pittsburg took out loan certificates in 1893. 
The total amount issued was $987,000, being only $2,000 

20040 — 10 8 105 



National Monetary Commission 



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Clearing-House M e t h o d s 

more than the issue at Buffalo. The first were taken out 
August II, and the last were retired November lo, the 
full amount of the issue having been outstanding on Sep- 
tember 15. The certificates bore interest at 6 per cent. 

A loan committee was appointed by the chairman of 
the clearing-house association of Detroit, upon vote of 
the association authorizing such action, and certificates 
bearing interest at 7 per cent were issued to members 
applying for the same in denominations of $1,000. A 
sample of the certificate employed is presented in reduced 
facsimile among the illustrations. The amount attained 
a maximum of $360,000 on September 11. In section 8 
of the constitution, provision in case of loss resulting from 
default in payment by a member of the obligation exe- 
cuted and delivered upon receipt of loan certificates and 
from failure to realize a sufficient amount from the securi- 
ties held as collateral to the obligation, is made as follows: 

Fifty per cent of the loss shall be prorated among the members on the 
amount of the capital stock, and the residue of the balance of loss shall be 
assessed pro rata the aggregate amount which the several members have 
sent to the clearing house during the time any of such certificates of deposit 
may have been outstanding. 

The Atlanta Clearing House Association passed a 
resolution, August 11, 1893, referring the matter of 
issuing clearing-house loan certificates to a special com- 
mittee, and on August 15 a communication from the 
chamber of commerce was entertained, requesting the 
issuance of clearing-house loan certificates, whereupon a 
committee of three was appointed to act as trustees for 
the receipt of collateral securities, and for the issuance 
of such certificates to the extent of 66^ per cent of the 
collateral deposited. 

107 



National M on et ar y Commission 



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Clear ing-House Methods 

On August 17 a new manager was appointed, who, 
under direction of the trustees, took active charge of 
issuing the certificates. The largest amount out at any 
one time was $127,000. All were redeemed by Novem- 
ber I, save about $20, which at last accounts were still 
outstanding. The denominations were $5, $10, $100, 
and $500. A sample of the largest denomination is pre- 
sented on another page.. 

Two things are characteristic of the Atlanta certifi 
cates which are not to be found in any of those hereto- 
fore discussed. In the first place they were issued to 
the extent of only 66% per cent of the collateral deposited 
as compared with a minimum of 75 per cent in the other 
associations; and in the second place it is to be noted on 
the certificates that they "will be received on deposit 
or in payment of debts due any bank in said clearing 
house" — an implication that they were used for gen- 
eral circulation, which, indeed, is true. 

In June, 1893, the clearing-house association at Bir- 
mingham, Ala., appointed a committee to inquire into 
the best methods for relieving the situation, which was 
aggravated by a run on one of its members about a month 
previous to that time, and the committee recommended 
the use of clearing-house loan certificates. In addition 
to this, the association passed resolutions similar to the 
one passed at New Orleans, limiting the amount of actual 
cash each member should pay to a customer on any one 
day to $100, which was afterwards reduced to $50, and 
providing a penalty for violation. The denominations 
of loan certificates first used were $1,000, $500, $100, $50, 

$10, and $5, respectively. 

109 



National Monetary Commission 

Like the certificates in Atlanta, they were intended for 
general circulation among the customers of the banks, 
but unlike any certificates previously mentioned, they 
were issued to the extent of only 50 per cent of the col- 
lateral required. Customers at first received them with 
much reluctance, but they soon found that the merchants 
would take them for debts and for merchandise, that the 
banks would take them on deposit and accept them in 
payment of notes. To obtain cash, persons commenced 
to buy small bills of goods with them, expecting to receive 
money in change. This checkmated the merchants, and 
they called on the association for smaller denominations. 
Hence certificates of $2, $1, 50 cents, and 25 cents were 
subsequently issued. No other association in the United 
States had previously compared with the one at Birming- 
ham in the comprehensiveness of its currency system and 
in the extent to which it was projected on this occasion. 
A facsimile of one of the smaller certificates is presented 
among the illustrations. 

On August 22, 1893, the following resolution was 
adopted by the clearing-house association at Richmond, 
Va. : 

Resolved, That the committee have certificates prepared in denomina- 
tions of $1, $5, and $10 in handsome form, ready for use at such time as this 
association may hereafter determine, said certificates to be payable on 
demand after ninety days through the clearing house, to bear 3 per cent 
interest per annum, and to be secured by deposits of collateral as by 
former resolution, interest to cease after ninety days. 

The certificates were duly prepared in compliance with 
the authority thus given, but were never used. 



Clearing-House Methods 



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National Monetary Commission 

The clearing-house association at Chattanooga, Tenn., 
resorted to loan certificates in 1893 (the first time in the 
history of that organization that it had done so) . 

Besides the loan certificates issued in 1893, there was 
a considerable amount of emergency circulation taken 
out by the banks in the Southeast, under the title of 
''Clearing-house certificates," in cities where no clear- 
ing houses existed. In adopting the name of clearing- 
house certificates, it was not the purpose of the banks 
to practice deception on the people, but to indicate what 
was really true and what the term would seem to imply, 
namely, that such certificates were temporary loans made 
by the banks associated together, and that the banks 
were pledged for their redemption. The denominations 
in the cities referred to were: Albany, Ga., $10, $5, and 
$1; Chester, S. C, $10, $5, and $1; Columbia, S. C, $50, 
$20, $10, $5, $2, and $1; Danville, Va., $100, $50, $20, 
$10, $5, $2, and $1; Newman, Ga., $10, $5, and $1; and 
Rock Hill, S. C, $5, $2, and $1. There is no doubt that 
the relief afforded in this manner was of great public 
assistance in the several communities where it was given, 
effecting results similar to those accomplished by the 
actual clearing-house loan certificates in the great centers. 

In 1895 came another period of depression, especially 
in certain localities, but by no means so disastrous nor so 
permanent as the panic of 1893. Such was the pressure 
at Boston, however, that the clearing-house association 
authorized the issue of loan certificates, which were taken 
out to the extent of $235,000, the last of which were 



Clearing-House Methods 

retired March 12, 1896. In like manner, at Philadelphia 
an issue was made aggregating $8,220,000. 

In 1896 at New Orleans, alone, clearing-house loan 
certificates w^ere issued, this having been the eleventh 
time that resort to such measures had been made since 
the history of clearing houses in this country began, less 
than a half century ago. The largest amount of certifi- 
cates outstanding at one time was $399,000, and was 
attained on September 4. The last of the certificates 
were retired and canceled November 17. The occasion 
for the issue at this time was, no doubt, the disturbance 
in business circles arising from the presidential contest, 
which, always a disturbing factor, was in this year unu- 
sually exciting. Thus the New Orleans Clearing House 
Association enjoys the unique distinction of having on 
two occasions — 1879 ^^^ 1896 — been the only association 
to issue loan certificates. 

The method of calculating interest on certificates has 
been in many associations a source of much difiiculty. In 
some instances the clearing houses have taken no cog- 
nizance of the interest whatsoever, but left the members 
free to adjust it for themselves. It is clear that the 
interest, like the balances, must consist of credits and 
debits which exactly equal or offset each other. That is 
to say, the interest charged against certain members for 
the certificates taken out by them must exactly equal the 
interest paid to the members holding the certificates. It 
was not a difficult matter to keep a proper record of the 
interest to be charged against the members, for the clear- 
ing-house committee knew to whom and in what amounts 



113 



National Mo n etary C o mmis s 



t n 



they had issued certificates, and it was necessary only to 
calculate the interest at the stipulated rate on the full 
amount of the certificates issued to the several members 
for the time they were outstanding and to place the 
same to their debit; but to know what members held 
certificates issued to other banks and in what amounts 
after the settlement of balances therewith began was to 
many a source of- confusion. 

The New York plan has been perhaps the most complete 
and satisfactory, and was followed by many of the associa- 
tions. Each member was required to send to the clearing 
house each morning a statement of the amount of certifi- 
cates on hand. In a book kept for the purpose these 
amounts were entered to the credit of the banks, each 
account being kept on a separate page. At the end of the 
month footings were made of the certificates held by each 
bank for that time, and the total divided by the number of 
days the certificates were outstanding. This gave the 
average amount of certificates on hand for the given time, 
and upon this amount interest was calculated at the rate 
agreed upon and placed to the credit of the bank. Drafts 
were then drawn upon the banks to whom certificates had 
been issued for the interest due by them. In turn checks 
were sent to the banks holding certificates for the interest 
due to them. 

The same plan was followed at Philadelphia, but at 
Boston each member calculated daily the interest due on 
the certificates held, and sent to the clearing house with 
the certificates to be used in settlement of balances a 



114 



Clearing-House Methods 

ticket containing a statement of the interest due for the 
time the certificates were held. 

At Buffalo the interest was calculated daily and settled 
weekly by draft of the manager on debtor banks in favor 
of creditor banks. At Louisville, Ky., the interest on the 
certificates taken out in 1891 was calculated by the bank, 
the clearing house taking no cognizance thereof whatso- 
ever. The rate was fixed at 9 per cent for two days — 
virtually 18 per cent — and was placed at such an exorbi- 
tant figure to prevent the banks which took advantage of 
such certificates from expanding their loans at a higher 
rate of interest than they were paying on their loan 
certificates. 

In all such cases the question might arise as to the 
disposition of the interest charged against members on 
certificates taken out but never used. It is only necessary 
to say in reply that it was the common practice to charge 
each with the full amount of certificates taken out, and to 
credit said bank with the full amount of certificates held, 
to whomsoever they might have been issued. The credit 
and debit interest, therefore, on certificates issued to any 
member, but never used, would exactly balance. 

The certificates issued at Wheeling, W. Va., in 1907, 
bore no interest, but they were returned, the day following 
their receipt by the banks, through the clearing house, with 
an exchange charge of 10 cents each added. 

Owing to a popular misconception of the character and 
purpose of clearing-house loan certificates, much adverse 
criticism regarding them has been indulged in, especially 
in 1893, on the ground that such issues were made in 



115 



National Monetary Commission 

violation of the lo per cent prohibitive tax on bank-note 
currency other than national bank-note circulation. 
Such objection was based on the assumption that clearing- 
house loan certificates were a form of national bank cur- 
rency — an assumption which is ill-founded, both in theory 
and in fact. The certificates are essentially temporary 
loans made by the banks banded together as a clearing- 
house association to the members of such association, and 
are available to such banks only for the purpose of settling 
balances due from and to each other. In the words of a 
Comptroller of the Currency, they were but duebills, and 
their sole function consisted in discharging the single 
obligation at the clearing house. An attempt on the part 
of a bank in any of the associations issuing these certifi- 
cates to use them otherwise would have incurred a fine and 
other penalties, provided in the rule governing such asso- 
ciations. In no instance, except those mentioned in the 
South, were they designated to serve as money, and 
nowhere else did they circulate as money. Hence the 
courts of Pennsylvania decided that they should not 
be regarded as money. The imposition of a tax upon 
them, therefore, would have been not only a serious blow 
to one of the most effective and ingenious contrivances 
for the deliverance of the country from the throes of panic 
that has yet been devised, but would also have been a 
direct violation of the spirit of the law. 



ii6 



Chapter XI. 

CLEARING-HOUSE LOAN CERTIFICATES OF THE PANIC 

OF 1907. 

CAUSES 01^ PANIC — ACTION OF THE NEW YORK CI^EARING 
HOUSE — CHICAGO CI.EARING HOUSE — BOSTON CI^EARING 
HOUSE — PHIIvADEl^PHIA CI.EARING HOUSE — CIvEARING- 
HOUSE CHECKS ISSUED AT CANTON, OHIO — AT CINCINNATI 
AND CIvEVElyAND — CERTIFICATES AT FARGO, N. DAK., AND 
EOS ANGEEES — PEAN OF GROUP 2, OHIO BANKERS' ASSO- 
CIATION — TOTAL OF CERTIFICATES ISSUED. 

During the latter half of 1907 a panic of great severity 
was experienced in this country, and while many reasons 
have been assigned as the cause of the disturbance, there 
is, apparently, no one that in itself exactly accounts for 
its presence at that time. A prominent banker and 
economist has recently stated as follows: 

The truth is that responsibility for the panic of 1907 lies at the door of 
our currency system. No other adequate cause can be found. We do 
business by the modern system of bank credits, but we have failed to sup- 
plement this machinery with the means for readily converting bank credits 
into cash. 

Whatever its causes were. New York banks found 
themselves in the fall of that year contending against 
rapidly falling bank reserves and runs on one or two 
prominent trust companies, both of which facts caused 
much uneasiness on the part of the general public. 

A meeting of the New York Clearing House Association 
was held on October 26, 1907, for the purpose of deter- 
mining whether the situation was sufficiently serious to 



117 



National Monetary Commission 

warrant an issue of clearing-house loan certificates. It 
had been hoped for a week previous to the calling of this 
meeting that the crisis might be successfully passed over 
without the necessity of an issue of loan certificates 
arising. The situation, however, grew rapidly worse. 
Several of the banks applied for and received assistance 
through the joint action of many of the banks, who 
advanced cash, receiving therefor participating certificates, 
the clearing house holding the collateral security for the 
same. The drain upon all the banks was exceedingly 
severe, and it soon became apparent that aid would 
shortly be solicited by other members of the association. 
For this reason the meeting of the associated banks was 
called, and as the result of their deliberations a loan com- 
mittee was unanimously appointed on the above-men- 
tioned date and proceeded to receive and pass on collateral 
and issue loan certificates therefor under the terms of the 
following resolution: 

Resolved, That the clearing-house committee, with the president of the 
association, be authorized to receive from banks members of the associa- 
tion bills receivable and other securities to be approved by said committee, 
who shall be authorized to issue therefor to such depositing banks loan 
certificates bearing interest at 6 per cent per annum, and such loan cer- 
tificates shall not be in excess of 75 per cent of the market value of the 
securities or bills receivable so deposited, and such certificates shall be 
received and paid in settlement of balances at the clearing house, and all 
rules and regulations heretofore adopted in the issue of such certificates 
shall be in force in the present issue. Said committee shall have power 
to associate with it such other bank officers as they may judge necessary. 

The committee first issued $11,235,000 of certificates to 
take care of the aforementioned participating receipts, 
given for loans advanced the preceding week. 

The date of the first issue was October 26, 1907. 



118 



Clearing-House Methods 

The date of the first cancellation was November 14, 
1907. 

The date of the final issue was January 30, 1908. 

The date of the final cancellation was March 28, 1908. 

The gross issue of certificates was $101,060,000, and 
the maximum amount outstanding was $88,420,000 on 
December 16, 1907. 

During the period of its existence there passed through 
the hands of the committee, including original deposits 
of securities and substitutions of the same (both with- 
drawals and deposits), collateral aggregating in amount 
the vast total of $453,000,000, of which $330,000,000, 
or 72.92 per cent, consisted of commercial paper and 
$123,000,000, or 27.08 per cent, of stocks, bonds, and 
short-time railroad and other similar notes. 

Three thousand five hundred and forty-eight certificates 
were issued as follows : 

412, at $100,000 each $41, 200, 000 

522, at $50,000 each 26, 100, 000 

1,005, at $20,000 each 20, 100, 000 

1,123, at $10,000 each 11, 230, 000 

486, at $5 ,000 each 2, 430, 000 

The greatest amount of certificates issued to any one 
bank was $17,000,000, an amount of certificates greater 
than the aggregate issue of any individual clearing house 
in the United States, with the exception of Chicago! 
The smallest amount issued to any bank was $250,000, 
which was done in two instances. 

The aggregate amount of the issue, as will be seen by 
a comparison of figures, was two and a half times as large 
as the issue of 1893, $41,490,000, which was, up to that 
time, the maximum amount that had been put out. 

119 



National Monetary Commission 






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Clearing-House Methods 

Beginning with i860 the issues of clearing-house loan 
certificates, at New York alone, have amounted to the 
enormous aggregate of $269,839,000, all of which have 
been redeemed without the loss of a single dollar, and 
in periods ranging from three to seven months from the 
date of first issue. 

The issue of clearing-house loan certificates by the 
Chicago Clearing House Association constituted a dis- 
tinct innovation, since the action was taken for the first 
time in the history of the association. In 1893 the subject 
of making an issue of certificates was under serious con- 
sideration, and a vote was taken which showed a majority 
in favor of such action. Considerable aid had, however, 
already been given to the needy members, and the crisis 
was passed without the necessity for issuing certificates 
becoming apparent. 

On October 26, 1907, the same day on which the New 
York association took its action, the clearing-house 
association at Chicago met and passed resolutions author- 
izing the issue of clearing-house loan certificates, under 
conditions very similar to those governing their issue 
by other large cities. The certificates were issued under 
the supervision of the clearing-house committee to the 
extent of 75 per cent of the market value of the collateral 
deposited and bore interest at the rate of 7 per cent. 

This original action at Chicago was followed on No- 
vember 6, 1907, by the passing of a supplemental set of 
resolutions authorizing the issue of clearing-house checks, 
a sample of which is shown among the illustrations, as 
follows : 

2C040— 10 9 121 



National Monetary Commission 



The undersigned members of the Chicago Clearing House Association 
do bind themselves by the following agreement supplemental to and in 
extension of the mutual agreement which was entered into by them under 
the date of October 29, 1907, for the purpose of assisting and protecting 
the community and facilitating interbank settlements resulting from 
their daily exchanges: 

First. Any bank being a member of the Chicago Clearing House Asso- 
ciation may at any time surrender to the clearing-house committee any 
loan certificate held by it which was issued under said principal agreement 
of October 29, 1907, to any other member of the association and receive 
in lieu thereof checks to the amount of the principal thereof, in the de- 
nominations of $2, $5, and $10, as desired, drawn by or under the direc- 
tion of the clearing-house committee on the banks to whom the surrendered 
certificate was originally issued and made payable through the Chicago 
clearing house only to the bank, or bearer, applying therefor, as aforesaid, 
which checks shall not draw interest. 

Second. The checks so issued in lieu of certificates surrendered shall 
run to the bank applying therefor or bearer, and be negotiable like other 
bank checks, but neither the clearing-house association, the clearing- 
house committee, nor any member thereof shall be liable thereon, in 
respect thereto; but the same shall have the benefit and protection pro 
rata of the securities deposited under said principal agreement to the same 
extent as the certificates upon the surrender of which they were, respec- 
tively, issued, and so far as said securities are concerned shall stand in 
the place of such surrendered certificates. 

Third. At any time any bank on which said checks are drawn may 
present any thereof that may have been paid by it to the clearing-house 
committee and surrender the same and receive credit therefor on or against 
the principal of the loan certificates in place of which the same were re- 
spectively issued. Any interest which may accrue or be allowed on any 
of said loan certificates, while the same is held by the clearing-house com- 
mittee as aforesaid and checks are outstanding against the same, shall 
accrue and be allowed and paid to the Chicago Clearing House Association. 

The first clause of the foregoing agreement was amended 
on November 13 to read as follows: 

Any bank, being a member of the Chicago Clearing House Association, 
may at any time surrender to the clearing-house committee any loan cer- 
tificate held by it which was issued under said principal agreement of Octo- 
ber 29, 1907, to any member of the association and receive in lieu thereof 
checks to the amount of the principal thereof in denominations oi $1, $2, 
$5, and $10, as desired, drawn by or under the direction of the clearing- 
house committee on the following banks designated for that purpose, viz, 



Clearing-House Methods 

the First National Bank, the Corn Exchange National Bank, the Conti- 
nental National Bank, and the Commercial National Bank, and made pay- 
able through the Chicago clearing house or to the bank, or bearer, applying 
therefor, as aforesaid, which checks shall not draw interest. 

Thus it will be seen that the Chicago Clearing House 
Association issued checks in amounts of $i, $2, $5, and $10 
designed for general circulation, to the extent "of about 
$7,500,000, secured by clearing-house loan certificates, 
which in turn were secured by 133 per cent of good col- 
lateral. The aggregate amount of clearing-house loan 
certificates issued in Chicago was $39,240,000, and the 
maximum amount outstanding was $38,285,000 on De- 
cember 18, 1907. 

The first issue was made on October 28, the last issue 
on December 17, 1907. The first cancellation was made 
on December 14, 1907, and the final cancellation on Jan- 
uary 17, 1908, thus showing the issue to have been of less 
than three months' duration. 

During the last few days of October the Boston Clear- 
ing House Association met and appointed a committee of 
six bank officers, of which the chairman of the clearing- 
house committee was one, to receive bills and notes re- 
ceivable and other securities to be approved by the com- 
mittee, who thereupon issued certificates to an amount 
not in excess of 75 per cent of the value of such property 
deposited, as determined by the committee, the certifi- 
cates bearing interest at the rate of 7.3 per cent. 

The resolutions further provided that any loss arising 
from the issue of the loan certificates should be borne by 
the banks of the clearing-house association, pro rata, ac- 
cording to the average daily amount which each bank 



123 



National Monetary Commission 

had sent to the clearing house during the twelve months 
ending September 30, 1907. 

Under these regulations a total issue of $12,595,000 
was made. The first certificates were put out on Octo- 
ber 28, 1907, and the last were withdrawn and canceled 
on January 24, 1908. 

The associated banks of Philadelphia issued clearing- 
house certificates under an agreement which went into 
effect on September 24, 1873, ^^^l has remained substan- 
tially without change from that time. In all essential 
details it is similar to the regulations at New York, and, 
therefore, needs no special comment. 

On account of the temporary scarcity of currency 
employers found it necessary to make payments of wages 
in pay checks, payable through the clearing house, 
instead of in cash, and it was deemed important that such 
checks should be rendered as readily available as possible. 
A special meeting of the clearing-house association was, 
therefore, called on November 16, 1907, and the following 
resolutions were unanimously adopted: 

Resolved, That it is recommended by the clearing house of Philadelphia 
that hereafter pay-roll checks made payable through the exchanges of the 
Philadelphia clearing house shall be certified before issue by the banks 
upon which they may be respectively drawn. 

Resolved, That the clearing-house association recommend that no pay- 
roll checks be certified by any member of the association unless furnished 
by the American Bank Note Company in the form approved by the clear- 
ing-house committee. 

Resolved, That such pay-roll checks shall only be furnished to members 
of the association upon application to the clearing-house committee. 

Resolved, That the members of this association before certifying pay- 
roll checks shall open a pay-roll account for the depositor to whom such 
checks are issued, to which account said pay-roll checks shall be charged 
when paid. 



124 



Clearing-House Methods 

Resolved, That returns of the amount of checks issued and outstanding, 
as shown by the balance to the credit of pay-roll account, shall be made 
daily to the clearing-house committee by the banks which have accepted 
and certified them. 

The aggregate issue of clearing-house loan certifi- 
cates by the Philadelphia banks was $13,695,000, an 
amount considerably in excess of that of any previous 
issue. 

Many of the clearing houses of the country issued 
clearing-house checks, or cashier's checks, generally 
under proper safeguards, in small denominations, which 
were intended for general use, to take the place of cash 
temporarily withdrawn from circulation. 

Canton, Ohio, is a center of manufacturing inter- 
ests of considerable magnitude, and, therefore, re- 
quired large amounts of cash for pay rolls, which was 
not available. A consultation was held between the 
bankers and their manufacturing clients, with the result 
that the use of pay checks was agreed upon. One 
general form was used, there being but three denomi- 
nations — $5, $10, and $20 — and each bank provided 
its customers with a supply of these. The checks were 
made payable to bearer through the Canton clearing 
house only, and had to be signed by an authorized 
person connected with the firm or corporation issuing 
them. These checks, however, were found unsatisfactory, 
partly from the fact that when small purchases were 
made with them the tradespeople were obliged to make 
change with cash, which soon exhausted their supply. 
Subsequently, therefore, clearing-house checks, or cash- 
ier's checks, payable to bearer through the clearing 



125 



National Monetary C ommis s io 



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126 



Clearing-House Methods 

house only, in amounts of $i, $2, $5, and $10, were 
issued to the extent of about $200,000. These checks 
had no collateral security back of them, and were ac- 
cepted purely on the responsibility of the issuing bank. 
A specimen of this check is shown herewith. 

A special committee was appointed by the Cincin- 
nati clearing house on October 28, 1907, and early in 
November of that year checks, printed from steel 
plates, in denominations of $2, $5, $10, and $20, were 
issued to each of the 14 clearing-house banks. The 
committee received from each bank high-class collateral 
security of not less than 20 per cent in excess of the 
face value of the certificates delivered to it, which col- 
lateral was held until the checks were retired and can- 
celed. A list of merchants who had expressed a will- 
ingness to cash these checks, numbering in excess of 
300 names, was published in the papers, and in several 
instances a premium of as high as 5 per cent was al- 
lowed for cash purchases made and settled by these 
cashier's checks. The total amount of the checks so 
issued was about $2,000,000, and as soon as the cur- 
rency situation again became normal they practically 
retired themselves. 

The action of the Cleveland association in this re- 
gard was substantially the same as that taken by Chi- 
cago, with the exception that the clearing-house loan 
certificates issued by the associated banks of Cleve- 
land were not used in the settlement of balances at 
all, but were made the basis, dollar for dollar, for the 
issue of clearing-house checks in denominations of $1, 



127 



National Monetary C ommis s io 



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128 



Clearing-House M e t h o d s 

$2, $5, and $io, of which it is said they performed 
nearly all the functions of currency during the brief 
period of their existence. 

The Fargo (N. Dak.) Clearing House Association 
appointed a trustee to receive collateral and issue clear- 
ing-house loan certificates in denominations of $5, $10, 
$20, $100, and $500. These certificates, a facsimile 
of which is presented among the illustrations, were 
payable on or before three months after date, were 
signed by the president and secretary and attested 
by the trustee, and were issued to the extent of only 
50 per cent of the collateral deposited — an unusually 
low percentage. 

In addition to an issue of clearing-house loan cer- 
tificates made by the Los Angeles association on Octo- 
ber 30, 1907, authorization was also given for an issue 
of what was termed ''clearing-house circulating cer- 
tificates or scrip," designed as a circulating medium 
for the general use of the public. These ''circulating 
certificates," in the regulations governing their issue, 
closely resemble the clearing-house checks issued by 
several other associations, and their purpose was iden- 
tical. In form they were somewhat more elaborate 
than were most of such certificates issued during that 
period, the idea being to render them as difficult of 
counterfeiting as was possible. 

Most of the clearing houses that issued both clear- 
ing-house loan certificates and clearing-house checks 
secured the checks by the deposit of loan certificates, 
which were secured by collateral, but at Los Angeles 



129 



National Monetary Commission 












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130 



Clearing-House Methods 

both the loan certificates and the scrip were directly 
secured by collateral, the former to the extent of 133 
per cent, and the latter by securities valued at 200 per 
cent of the amount issued. 

The loan committee of the Oklahoma City Clearing 
House Association adopted resolutions permitting the 
banks to take out certificates in the same form as those 
used at St. Louis, but provided that no bank should be 
required to hold, in the aggregate, an amount of these 
certificates that would more than equal 5 per cent of 
their deposits on the day the certificates were offered to 
them in payment of balances at the clearing house, and 
that when a bank having a credit in the clearing house 
reached the 5 per cent limit the debit bank should pay 
currency or exchange at the option of such bank. 

The action taken by the associated banks of group 
No. 2 of the Ohio Bankers' Association, which includes 
the banks of Allen, Auglaize, Darke, Hancock, Harden, 
Logan, Mercer, Miami, Paulding, Putnam, Shelby, and 
Van Wert counties in that State, is worthy of comm^ent, 
since it offers the first concrete example of the possibili- 
ties of the banks of any particular section of any State, 
uniting in an effort to overcome the disastrous conse- 
quences resulting at times from false rumors in panic 
periods. The agreement under which the group above 
mentioned operates contains some new and interesting 
features, and it is therefore presented in full, viz: 

The undersigned associated banks, members of group No. 2 of the Ohio 
Bankers' Association, each for itself or himself, as well as mutually with 
the others hereto, in consideration of the benefits derived and to be derived 
from the following agreements, stipulations, and conditions, agree hereto, 



131 



National M on et ar y Commission 



and each bank or banker affixing it with his name hereto, or by resolution 
adopting and confirming these articles, agrees to be bound by each and 
all of the provisions hereof. 

i; It is intended hereby to provide protection to the banks and bankers 
and the patrons thereof joining herein. 

2. Three trustees shall be named and vacancies filled by the executive 
committee of group No. 2 of the Ohio Bankers' Association, and these three 
shall constitute a board of trustees, hereinafter referred to as "said board,'' 
for the purposes of carrying out this agreement. 

3. Any two members of said board are authorized to act hereunder. 

4. Said board shall have full authority to grant relief to any bank or 
banker hereof upon satisfactory assets and the title thereto being trans- 
ferred and delivered to said board. 

5. Said board shall be the sole judges of the necessity, sufficiency, and 
deservability of such relief, as well as of the value of such assets, and the 
amount advanced to any bank or banker shall in no case exceed 60 per 
cent of the cash value of such assets so transferred and delivered to said 
board. 

6. A member hereof desiring relief in either manner herein named shall 
apply and furnish all necessary information and details required by said 
board, and comply with all requests of said board and pay all expenses 
incident to the entire transaction, whether as to application furnishing 
relief or repayment. 

7. All advances made under the order of said board to any member 
hereof shall, together with 8 per cent interest, be repaid within sixty-five 
days from the making of such order by said board. 

8. In order to enable said board to act promptly upon any application 
for relief, each member hereof shall, on January i and July i of each year, 
furnish to the chairman of said board a detailed statement of the resources 
and liabilities of such member, which information is for the sole use of said 
board, and the improper disclosure by any member of said board shall be 
cause for his removal by the executive committee. 

9. In case relief is decided upon to any member hereof, said board hav- 
ing fixed the amount of such relief shall apportion between the members 
hereof the amount to be paid by each, based upon its resources, and each 
member shall be notified of the fact of relief, the amount to be paid by such 
member, and the same shall at once be sent to such member granted relief, 
payable in gold, silver, or currency, as the sending member may elect, and 
a failure so to do as provided shall subject such defaulting member to a 
forfeiture of his rights hereunder for relief and the surrender of his certificate 
of protection hereunder; and each member so advancing shall at once 
notify said board of the date, amount, and manner of such remittance, and 
each member so relieved shall not only receipt to each assisting member 
but shall send a copy of such receipt to said board. Upon assurance of 



132 



Clearing-House Methods 

such contribution said board shall issue to each contributing member a 
certificate of the fact, date, and amount of such contribution. 

10. Upon failure of any member so aided to pay any sum, interest, and 
expenses as above provided when due, then said board in their names, fol- 
lowed by the word "trustees," are authorized to sue and recover from 
said defaulting member the said amount, interest, and expenses, or con- 
vert said assets into money by suit as above or otherwise, or said board 
may, at its election, sell at public or private sale, with or without notice, 
the assets so transferred and delivered to it by such defaulting member, 
and said board is authorized, by the signature of its chairman, as follows: 

" Without recourse , Chairman. " 

to indorse, transfer, and deliver upon such sale the full and legal title to the 
purchaser of any or all assets so delivered to it by such defaulting mem- 
ber. After closing out the transaction, any balance left in the hands of 
said board after paying the amount, interest, and costs as a result of such 
relief shall return to said defaulting member any balance in its hands; or, 
in case the sale of said assets shall not be sufficient to fully pay said amount 
so furnished, together with interest and costs as above provided, said de- 
faulting member shall be liable to said board for such balance, to be col- 
lected by suit or otherwise as above provided. 

11. All repayments shall be to said board and shall be distributed by it 
among the members contributing to such members relieved upon the same 
basis that such relief was extended. 

12. In case it should be determined by the executive committee of said 
group that checks should be used for the relief of any member hereof in 
lieu of direct relief as hereinbefore provided, then, and in that event, said 
board may receive of the assets to be selected, valued, and determined as 
hereinbefore provided, and may furnish blank checks for the use of such 
member, to be issued by it to the amount of 60 per cent of the value of the 
assets so indorsed and deposited with said board as security against said 
checks, and for the purpose of protecting the other members hereof against 
loss by reason of the issuance of such checks by such member. Said blank 
checks shall be lithographed, and said board shall keep a record of the 
numbers and amounts of such checks as to each bank so receiving same 
for its benefit. Said checks shall also on their face contain the following 
statement : 

"In addition to the liability of this bank, collateral has been deposited 
with the board of trustees of associated banks, group No. 2, Ohio Bankers' 
Association, as additional security herefor;" and also in the lower left- 
hand corner the words "Payable in exchange." Upon the acceptance 
of the collateral and delivery of said blank checks said member so receiving 
the same may issue them, and each member hereto agrees to receive them 
in the course of business. Said bank so receiving said checks shall, at the 
earliest possible date, redeem them by canceling them and presenting 



133 



National Monetary Commission 



them to said board, receiving in return the collateral deposited, but such 
collateral shall be held and retained as security for the members hereof 
until such checks have been canceled and returned, each member hereof 
to be notified of the amount of such checks so delivered to each member 
upon such collateral. Said board shall have the right in the interest of 
all members hereof to call for the cancellation and return of said checks 
at such time or times as it deems best, and if, for any reason, said member 
so receiving said checks fails to comply with said request, said board may 
sell such collateral either at public or private sale, with or without notice, 
and transfer to the purchaser thereof perfect title therein in the following 
manner, to wit: 

" Without recourse 

, Chairman." 

and use the proceeds of such sale in the redemption of said checks so 
received by said bank, the balance, if any, to be delivered to said member; 
or, in case the sale of said collateral is not sufficient to redeem said checks, 
any balance shall be a claim against such member. 

13. Any member having received relief in either manner above named 
shall not make any loans or discounts until the relief, interest, and expenses 
above named shall have been fully paid or said checks fully redeemed, and 
any breach of this clause shall render due the sum so advanced and the 
interest thereon, or the immediate rights to sell collateral under the "check" 
clause hereof, and said board may proceed as though the full limit of time 
had elapsed for repayment of said sum advanced and interest thereon. 

14. It is expressly understood and agreed that said board and its mem- 
bers, when appointed, are the trustees for the members hereof, fully author- 
ized in the premises to do all things, to fully carry out the purposes hereof 
and they, by so acting, assume no personal liability. 

15. On account of the number of parties hereto this agreement is printed, 
and the signature of any member hereof to any printed copy mailed to the 
chairman of said board shall bind such member for himself and mutually 
with all others. 

16. Any member hereof who may engage in what, in the judgment of 
said board, is illegal or improper banking shall forfeit its membership 
herein when said board in its discretion deems it best to so declare, and 
the certificate so issued to such member shall be returned to said board 
and all rights of said member hereunder shall cease and determine, except 
as to its right to be reimbursed when and as any other members are reim- 
bursed for any advances by it made for the relief of any other member 
under the terms hereof. After January i, 1908, applications for member- 
ship hereto shall be upon written application directed to the chairman 
of the board of trustees, and membership can be granted upon the approval 
of two members of said board. 



134 



Clearing-House Methods 

The object contemplated by this agreement was the 
protection of the members of the group against the dis- 
astrous results of rumor and consequent "runs" by ex- 
tending to the needy ones, Avho were worthy to receive 
it, such assistance as they might require to tide them 
over their troubles. In other words, it was a plan for the 
mutual protection of the banks in this particular section, 
and was one that might well be emulated, under like 
circumstances, by any group of any state association 
in the country. 

During the two or three days remaining in October, 
after the New York Clearing House Association had 
taken action, the clearing houses of the country, with 
practical unanimity, met and made provision, at least, 
for the issue of some form of instrument that would aid 
in relieving the existing conditions. A few clearing 
houses, prominent among which was the association at 
Washington, D. C, found no occasion for action at all, 
while others met and made provision, so that in case of 
need there would be no delay in getting the machinery 
going, but in the majority of cases the situation was 
sufficiently trying to cause the immediate issue of such 
instruments. These instruments bore rates of interest 
varying from 5 to lo per cent, and were issued for from 
50 to 80 per cent of the collateral deposited to secure 
them. 

It is practically impossible to estimate the amount 
of these instruments outstanding at any one time. 
Suffice it so say that it seems safe to assert that in excess 
of $250,000,000 of them, in the aggregate, were issued 



35 



National Monetary Commission 

during the panic by the various clearing houses of the 
country, and in addition thereto a few of the railroads 
and some of the larger industrial corporations issued 
checks of various denominations, which were used in 
making payments of wages to their employees during 
the period of extreme stringency, which checks passed 
current for the time being. 

Taken as a whole, these instruments served well the 
purpose for which they were issued, and once again the 
utility of them as an emergency measure was demon- 
strated in a practical way, and on a scale the magnitude 
of which had never before been approached. 



136 



Chapter XII. 
CLEARING-HOUSE BANK EXAMINERS. 

GENERAL REMARKS — EXAMINER APPOINTED AT CHICAGO IN 
1906 — MINNEAPOLIS AND ST. PAUL — ST. LOUIS — LOS AN- 
GELES — KANSAS CITY AND ST. JOSEPH — PHILADELPHIA — 
DETAILS OF PROPOSED GROUP PLAN OF THE CALIFORNIA 
bankers' ASSOCIATION. 

In the first edition of this book, pubUshed some nine 
years ago, the writer strongly advocated the appointment, 
especially by the stronger clearing houses of the country, 
of clearing-house bank examiners, whose duty it should 
be to make periodical examinations of each bank member 
of the associations with which they were affiliated, as a 
desirable means by which to reduce to a minimum the 
number of bank failures due to mismanagement and bad 
judgment. 

This recommendation was in no wise intended as a 
reflection upon the examinations pursued under national 
and state authority. The national and state officers are 
limited in their powers of criticism to actual infringements 
on the law, and before they can take steps to correct such 
infringements capital has often become impaired and 
failure is threatened. 

Most bank failures are due to the gradual acquirement 
of undesirable assets over a period of years, and if some 

20040 — 10 10 137 



National M on et ar y Commission 

authority exists with power to make recommendations of 
a remedial character, with the further power to enforce 
such recommendations, if necessary, there is httle doubt 
that many bank failures would be averted. 

The panic of 1907 presented many striking examples of 
just what is intended to be emphasized in this chapter, 
viz, that under the careful supervision of a competent 
and reliable examiner many of the assets of the failed 
banks, upon which it was impossible for them to realize 
at a tim.e when they needed their funds, would probably 
have been liquidated upon his recommendation and ad- 
vice long before the necessity for such liquidation had 
arisen. 

Mr. J. B. Forgan, of Chicago, has recently said on this 
subject: 

A competent examiner — and there are many such now in the govern- 
ment employ — while he can not pass judgment on all the loans in a bank, 
can, after a careful examination, or a series of examinations, form a won- 
derfully correct judgment as to the general character of its assets and as to 
whether its management is good or bad, conservative or reckless, honest 
or dishonest. Examinations, as they are now conducted, have a most 
beneficial influence on bank management, especially by way of restraint. 
The correspondence carried on by the Comptroller, based on the examiners' 
reports, does an inestimable lot of good in the way of forcing bank officers 
to comply with the law and in compelling them to face and provide for 
known losses as they occur. Supervision by examination does not, how- 
ever, carry with it control of management and can not, therefore, be held 
responsible for either errors of judgment or lapses of integrity. Examina- 
tion is always an event after the act, having no control over a bank's 
initiative, which rests exclusively with the executive officers and directors, 
and depends entirely on their business ability, judgment, and honesty of 
purpose. 

The clearing-house association of Chicago was the 
pioneer in the establishment of an independent system of 
clearing-house bank examinations in this country, its 

138 



Clearing-House Methods 

system having been inaugurated on June i, 1906, with 
results that have, to the present time, more than fulfilled 
the expectations of the bankers of that community. The 
chairman of the clearing-house committee, speaking in 
this connection only recently, said: 

The result of our experience in Chicago is most satisfactory and gratify- 
ing. The banks have almost unanimously adopted every suggestion made 
by the clearing-house committee for their betterment and strength. In 
several instances the committee, from its wider knowledge of the financial 
situation, has been able to save some of the smaller institutions from loss 
by enabling them to take hold of conditions in time. I can not properly 
go into such details as would illustrate the effectiveness of clearing-house 
examinations as we have experienced it, and can only say in a general way 
that it has been even more satisfactory than I anticipated it would be 
before it was undertaken. 

In substantially his own words the Chicago examiner 
operates under the following conditions: The examina- 
tions extend to all the associated banks of Chicago and to 
all nonmember institutions. The work is conducted with 
the aid of five regular assistants, each fitted by experience 
to thoroughly do that part of the work assigned to him. 
The examinations include, besides a verification of the 
assets and liabilities of each bank, so far as is possible, an 
investigation into the workings of every department and 
are made as thorough as is practicable. After each exam- 
ination the examiner prepares a detailed report in dupli- 
cate, describing the banks' loans, bonds, investments, and 
other assets, mentioning specially all loans, either direct 
or indirect, to ofiicers, directors, or employees, or to cor- 
porations in which they may be interested. The report 
also contains a description of conditions found in every 
department. One of these reports is filed in the vaults of 
the clearing house, in the custody of the examiner, and 

139 



National Monetary Commission 

the other is handed to the examined bank's president for 
the use of its directors. The individual directors are then 
notified that the examination has been made and that a 
copy of the examiner's report has been handed to the 
president for their use. In this way every director is 
given an opportunity to see the report, and the examiner, 
in every instance, insists upon receiving acknowledgment 
of the receipt of these notices. 

The detailed report retained by the examiner is not 
submitted to the clearing-house committee, under whose 
direct supervision he operates, unless the discovery of 
unusual conditions makes it necessary. A special report 
in brief form is prepared in every case and read to the 
clearing-house committee at meetings called for that pur- 
pose. The report is made in letter form^, and describes in 
general terms the character of the examined bank's assets, 
points out all loans, direct or indirect, to officers, directors, 
or employees, or to corporations in which they may have 
an interest. It further describes all excessive and impor- 
tant loans, calls attention to any unwarranted conditions, 
gross irregularities, or dangerous tendencies, should any 
such exist, and expresses, in a general way, the examiner's 
opinion of each bank as he finds it. 

Less than a year after the Chicago Clearing House As- 
sociation appointed its special examiner the associated 
banks of Minneapolis took similar action. The conditions 
under which the Minneapolis examiner operates are sub- 
stantially the same as those governing the examiner at 
Chicago, the principal difference being that instead of the 
examiner sending a copy of his report to the president of 



140 



Clearing-House Methods 

the examined bank and notifying each of the directors of 
such bank that he has made such examination and that 
the report is in the hands of the president of the institution, 
as is the rule of procedure at Chicago, and which, in a 
measure, leaves it to the discretion of the directors whether 
they examine the report carefully and in detail, the original 
report is delivered by the examiner at Minneapolis in per- 
son to the board of directors of each bank which he exam- 
ines, at a meeting convened for that purpose. The report 
is read and the criticisms, if any, are fully discussed, and 
the recommendations considered. In this way no director 
can com.plain that he had not sufficient opportunity to be- 
come fully conversant with all the details of his bank. 

This action was taken by the Minneapolis banks on 
February i, 1907, and on May i, 1908, fifteen months 
later, the associated banks of St. Paul, recognizing the 
utility and value of the plan, joined with the Minneapolis 
association in the arrangement for clearing-house examina- 
tions, and another assistant examiner was appointed. 
Examinations extend to all national, state, and savings 
banks and trust companies within the Twin Cities, to the 
number of 38 institutions, and the examiner visits each 
institution at least twice a year. 

At a meeting of the xSt. I^ouis Clearing House Associa-- 
tion held on October 11, 1907, the committee of manage- 
ment was authorized to devise regulations looking to the 
appointment of a clearing-house bank examiner, together 
with such assistants as he might require. The panic of 
that year, however, intervened, and the appointment of 
the examiner was deferred until February i, 1908, and he 



141 



National Monetary Commission 

commenced his work with two capable assistants and a 
stenographer on March 1 5 of that year. 

A detailed report is prepared in duplicate of the condi- 
tion of each bank examined, as at Chicago, setting forth 
a description of the bank's assets, including all loans, 
direct or indirect, to officers, directors, or employees of the 
bank, or to corporations in which they may have an interest 
and the nature and value of the collateral held to secure the 
same. The reports further detail all loans in excess of the 
legal limit, all loans upon which the margins are deemed 
insufficient, all past-due paper, and an estimate of the 
probable loss, if any is apparent, on all the bank's invest- 
ments. The reports also include the condition of the 
bank's reserve on the date of examiination and the gen- 
eral condition of the same for the thirty days immediately 
preceding. 

The banks are required to have a statement of their 
accounts with correspondent banks at the close of busi- 
ness on the day of examination, mailed direct to the ex- 
aminer, and these statements are reconciled with the 
books of the bank. Should errors or discrepancies be 
discovered, they, too, are made a matter of special com- 
ment in the report. All resource accounts are verified 
by an examination of the actual security, or by corre- 
spondence, and all liabilities as shown by the supple- 
mental books of the bank are listed and compared with 
the general ledger. 

The examiner may insist, if, in his judgment, the con- 
ditions warrant it, upon receiving a detailed reply signed 
by all the directors of the bank, regarding matters com- 



142 



Clearing-House Methods 

plained of in his report, and a statement from them as to 
what steps will be taken to correct the same. 

None of the details of the report are presented to the 
committee of management, unless, in the discretion of 
the examiner, the facts are such as to require their atten- 
tion. When, however, a state of affairs exists which is 
not in harmony with sound banking, or any infringement 
of federal or state laws is discovered, the regulations pro- 
vide that the report shall be submitted to said committee, 
and, after due consideration by that body, the officers 
and directors of the bank under criticism shall be brought 
before the committee and given a hearing. If the con- 
ditions are not corrected and a satisfactory adjustment 
made, the bank shall be denied the privileges of the clear- 
ing house. 

The committee of management of the St. Louis Clear- 
ing House Association evidently realized the danger of 
having one man so fully conversant with the affairs of all 
the banks, as was certain to be the case with an examiner 
of this character, and the temptation it might be to any 
bank to endeavor to secure the services of a man who 
possessed such an intimate knowledge of the affairs of its 
competitors, and provided against such a contingency by 
contracting with him, and also, with his assistants, not 
to accept any position in any financial institution within 
a radius of 300 miles of St. Louis, within a period of 
three years after severing their connection with the clear- 
ing house, unless such connection should be made with the 
knowledge and consent of the committee of management. 



143 



National Monetary Commission 

The clearing-house associations of Los Angeles and San 
Francisco have each provided for examinations of their 
respective members by special examiners appointed by 
the clearing house. The plan upon which these examiners 
operate is modeled closely upon the St. Louis idea, so that 
it would be ambiguous to discuss them in detail. Suffice 
it to say that they have been operative for a sufficient 
length of time to be well tried out, and that no dissatisfac- 
tion has become apparent. 

In the early part of 1908 the associated banks of Kan- 
sas City took under advisement the matter of securing 
the services of a special examiner to be in the employ of 
the clearing house, and in March of that year entered into 
a contract with one of the members of a firm of certified 
public accountants of that city to do the work. 

In all essential details the operations of the examiner 
are along the same lines as are those of other cities. One 
striking feature of the plan is the maintenance by the 
examiner of a credit record by card-index system, and in 
other ways, whereby memoranda are kept of the borrow- 
ings of all country banks and large individual firm and 
corporation borrowers, together with certain credit infor- 
mation, all of which is at the service of any member of the 
clearing house. Information as to the identity of the 
bank from which the borrowings have been made is never 
given, but a debtor's total borrowings and all other 
information, gathered from time to time by the examiner, 
are at the service of any bank which indicates a desire to 
have it. 



144 



Clearing-House Methods 

The St. Joseph Clearing House Association, in the early 
part of the present year, also entered into a contract with a 
prominent firm of certified public- accountants to make 
examinations of its various afiiliated institutions under 
constitutional provision. The plan contemplates but one 
examination of each institution a year, and much general 
satisfaction has been expressed with the examinations 
made thus far. 

The first and only association in the East to take this 
important step was that of Philadelphia. That the recent 
panic strongly impressed certain bankers of that city who 
served on the clearing-house committee during that trying 
period, with the idea that they had assumed an enormous 
responsibility in extending credit to the various members 
of the association without even the knowledge that their 
condition was satisfactory, is undoubtedly responsible for 
the unanimous action taken by the association on April 5, 
1909, providing for the appointment of a clearing-house 
examiner. The plan under which the examiner operates 
is the result of a study of all the systems and methods 
pursued in the West, and the best features of each have 
been adapted to their purposes. Having been thus formu- 
lated it is unnecessary to discuss the details, which would 
be a duplication of certain features of each of the other 
plans touched upon. In this instance, however, the 
examiner was obliged to enter into an agreement with 
the clearing-house committee not to enter the employ of 
any member or nonmember of the association, or any other 
bank, banking institution, firm, or individual engaged in the 



145 



National M o n e t ar y Commission 

business of banking in the city of Philadelphia, or within 
a radius of 250 miles thereof, for a period of five years after 
the expiration of his services with the association, which, 
as will be seen, precludes his acceptance of a position with 
a bank in the city of New York. The restriction as to the 
length of time during which he may not engage in the 
banking business within the prescribed radius is two years 
longer than that required by the association at St. lyouis. 
Prior to July i, 1909, the banking laws of California 
did not provide for any state supervision by examination 
of its banks ; and the bankers of that State, realizing that 
public opinion was gradually tending toward a demand 
for better supervision of banking institutions all over the 
country, and acting on a practical suggestion made by a 
visiting banker at one of the group meetings of the Cali- 
fornia Bankers' Association, started a movement which 
had for its purpose the formation of clearing-house asso- 
ciations for each of the state groups, each with proper 
officers and a local examiner. The laudable object of 
this California plan was ''to improve and strengthen the 
banking system of the State; to prevent improper and 
unsafe conduct upon the part of officers or directors of 
any bank within the State ; to provide a system of thorough 
and competent examination into the affairs of every bank 
belonging to this association by expert examiners ; and, 
generally, to safeguard the common interests of the 
banks and the public." All banks were eligible to mem- 
bership, but under the plan no bank could withdraw 
unless in good condition, and the associations had power 
to expel any member, notice of such expulsion to be sent 



146 



Clearing-House M e t h o d s 

to the national or state banking department, and to each 
and every member of the association. The plan contem- 
plated the division of the State into eleven districts, the 
clearing-house association of San Francisco being No. i , 
that of Los Angeles No. 2, and so on. 

The plan was perfected, and nothing remained but to 
set it in motion, when the California legislature passed a 
new banking law, based upon that of New York, which 
provided for the appointment of a competent superin- 
tendent of banks, with a liberal allowance for the expenses 
of the office. The new superintendent commenced his 
duties on July i of the present year, and pending an 
opportunity to observe the character, efficiency, and 
results of his work the group plan of examinations has 
been abandoned. 

The subject of the appointment of a bank examiner has 
been discussed by the associated banks of New York on 
one or two occasions, but sufficient opposition has each 
time developed to make it impossible of accomplishment. 



147 



Chapter XIII. 

THE NEW YORK CLEARING HOUSE. 

ORIGIN AND EARI^Y HISTORY — FORMAI. ORGANIZATION IN 
1853 — I^IRST I.OCATION — NEW YORK CLEARING-HOUSE 
BUILDING COMPANY — CEDAR STREET PROPERTY — CON- 
STITUTIONAL PROVISIONS — COMMITTEES — STATISTICS OF 
MEMBERSHIP — CLEARING FOR NONMEMBERS — STATE- 
MENTS OF CONDITION — CAPITALIZATION OF NEW YORK 
BANKS — RECORDS OF CLEARING HOUSE. 

Notwithstanding the magnitude of the transactions 
at the New York clearing house, and the important part 
that it plays in banking economy, very little is known 
about it outside of banking circles. The business com- 
munity is not familiar with its functions, and the public 
in general knows very little of its operations. While the 
exchanges are enormous, the method is simple and easy 
to comprehend. It is the purpose of this chapter, there- 
fore, to inquire into its origin and trace its growth and con- 
stitutional development. To the end that the reader may 
be the more fully prepared to comprehend its true signifi- 
cance it is necessary, by way of introduction, to pass in 
review the methods of exchange employed by the New 
York banks prior to its establishment. 

During a comparatively short period immediately fol- 
lowing 1849 the number of banks in New York increased 
from 24 to 60. In the daily course of business each bank 

received checks and other items on each of the other banks, 

« 

148 



Clearing-House Methods 

which had to be presented for collection. All such items 
on hand were assorted and listed on separate slips at the 
close of the day, and items coming in through the mail on 
the following morning were added at that time. To make 
the daily exchanges each bank sent out a porter with a 
book of entry, or pass book, together with the items to be 
exchanged. 

The receiving teller of the first bank visited entered the 
exchanges brought by the porter on the credit side of his 
book and the return exchanges on the debit side, who then 
hurried away to deliver and receive in like manner at the 
other banks. It often happened that five or six porters 
would meet at the same bank, thereby retarding one 
another's progress and causing much delay. Considerable 
time was consumed in making the circuit. Hence, the 
entry of the return items in the books of the several banks 
was delayed until the afternoon, at an hour when the other 
work of the bank was becoming urgent. 

A daily settlement of the balances was not attempted 
by the banks, owing to the time it would have required, 
but they informally agreed upon a weekly adjustment, the 
same to take place after the exchanges on Friday morn- 
ing. At that time the cashier of each bank drew a check 
for each of the several balances due it, and sent a porter 
out to collect them. At the same time the porter carried 
coin with which to pay balances due by his bank. After 
the settlement had been made, there was a meeting to 
adjust differences and bring order out of chaos. 

An old bank officer (J. S. Gibbons), in describing the 
inconveniences and defects of this system, says that some 



149 



National M o n et ar y Commission 

of the more speculative banks took advantage of the 
weekly method of settlements by carrying a line of dis- 
counts to an amount greater than their legitimate resources 
would allow. Thus, a bank would manage to carry a small 
debit balance of $2,000 or $3,000 v/ith thirty or more 
institutions, making a total debit balance of, say, $100,000 
on which it discounted paper. It was the practice to bor- 
row enough on Thursday to make the settlements on 
Friday, and the return of the loan on Saturday threw it 
again into the debtor column. Virtually, therefore, the 
weekly settlements were nominal only, and to show that 
there was no attempt at economy of time and labor in 
making them, it is only necessary to say that the cashier 
drew a check for every balance due him, whereas a draft 
on one bank in favor of another might have settled two 
accounts at once. 

The banks were at liberty to draw on each other for 
their credit balances without waiting for the settlements 
on Friday, and hence, when specie was needed, this was 
not infrequently done. But so far did many of the banks 
extend their loans and discounts that a single small draft 
by one bank on another would induce a general drawing 
and involve them all in confusion and virtual war on each 
other. Three o'clock would arrive, with the line of drafts 
incomplete, thus enabling debtor banks ofttimes to add 
$50,000 to their specie, whereas creditor banks would 
find themselves at the close of the day depleted in per- 
haps twice that sum. 

The desirability of a substitute for such a system had 
long been realized, but as yet no plausible scheme had 



150 



Clearing-House Methods 

been proposed. As early as 1831 a plan had been sug- 
gested by Albert Gallatin, which, to a very remarkable 
degree, coincided with the one ultimately adopted. His 
proposition occurs in a pamphlet of 124 pages, entitled 
"Suggestions on the Banks and Currency of the Several 
United States in Reference Principally to the Suspension 
of Specie Payments," and is so significant that we quote 
it in part: 

There is a measure which, though belonging to the administration of 
banks, rather than to legal enactments, is suggested on account of its 
great importance. Few regulations would be more useful in preventing 
dangerous expansions of discounts and issues on the part of the city banks 
than a regular exchange of notes and checks and an actual daily or semi- 
weekly payment of the balances. It must be recollected that it is by this 
process alone that a bank of the United States has ever acted or been 
supposed to act as a regulator of the currency. Its action would not in 
that respect be wanted in any city the banks of which would, by adopt- 
ing the process, regulate themselves. It is one of the principal ingredients 
of the system of the banks of Scotland. The bankers of London, by the 
daily exchange of drafts at the clearing house, reduce the ultimate balance 
to a very small sum ; and that balance is immediately paid in notes of the 
Bank of England. The want of a similar arrangement among the banks 
of this city produces relaxation, favors improper expansions, and is at- 
tended with serious inconveniences. The principal difficulty in the way 
of an arrangement for that purpose is the want of a common medium other 
than specie for effecting the payment of balances. Those are daily fluc- 
tuating; and a perpetual drawing and redrawing of specie from and into 
the banks is unpopular and inconvenient. 

In order to remedy this, it has been suggested that a general cash office 
might be established, in which each bank should place a sum in specie, 
proportionate to its capital, which would be carried to its credit in the 
books of the office. Each bank would be daily debited or credited in those 
books for the balance of its account with all the other banks. Each bank 
might at any time draw for specie on the office for the excess of its credit 
beyond its quota; and each bank should be obliged to replenish its quota, 
whenever it was diminished one-half or in any other proportion agreed on. 

It may be that some similar arrangement might be made in every other 
county or larger convenient district of the State. It would not be nec- 
essary to establish then a general cash office. Each of the banks of Scot- 
land has an agent at Edinburgh, and the balances are there settled twice 



151 



National Monetary Commission 

a week, and paid generally by drafts on London. In the same manner 
the balances due by the banks in each district might be paid by drafts 
on New York or any other place agreed on. 

These extracts contain the very quintessence of the 
clearing-house system. A regulation "belonging to the 
administration of banks rather than to legal enact- 
ments" comprehends the clearing house constituted as a 
private and voluntary association, unchartered, and in 
fact unknown to the law. The remedy for the "danger- 
ous expansions of discounts and issues" and for the 
"relaxation and serious inconveniences" is afforded by 
the very system which he proposed; and the "want of 
a common medium other than specie for effecting the 
payment of balances, ' ' which was the ' ' principal diffi- 
culty in the way of an arrangement for that purpose," 
strikingly suggests the clearing-house gold coin and legal- 
tender certificates in use at the present day. The problem 
of the "unpopular and inconvenient system of drawing 
and redrawing specie from and into the banks " has met 
its solution in the clearing house, and the "general cash 
office, in which each bank should place a sum in specie," 
is represented in the present coin depository. 

The proposition that the specie deposited by each 
bank should "be carried to its credit in the books of the 
office" savors of the I^ondon rather than of the Ameri- 
can plan. The extension of the clearing-house system 
is a partial fulfillment of the remark that "some similar 
arrangement might be made in every other county or 
larger convenient district of the State," and the absence 
of the coin depository in the smaller cities is in keeping 
with the idea that "it would not be necessary to estab- 



152 



Clearing-House Methods 

lish a general cash office in such places." The payment 
of balances in most of the smaller clearing houses, by 
drafts on New York and other large centers, is a re- 
markable confirmation of the idea that "balances due 
by the banks in each district might be paid by drafts 
on New York or any other place agreed on." 

But the times were not ripe for the scheme thus pro- 
posed. Mr. Gallatin was thinking in advance of the age. 
More than twenty years passed by before his fellow- 
bankers could appreciate the wisdom of his suggestions. 
In time, however, the question began to be more gen- 
erally discussed. For nearly a year it was under con- 
sideration, and finally it was deemed advisable to call a 
meeting to take decisive action upon it. 

On August 23, 1853, 16 presidents, i vice-president, 
and 21 cashiers, representing 38 banks, assembled in the 
directors' room of the Merchants' Bank, and at this 
meeting a resolution was passed providing that "a 
committee be appointed to procure or hire a suitable 
room in or near Wall street, for the purpose of holding 
meetings of the officers of the city banks; that the said 
committee be requested to submit a plan, at an adjourned 
meeting of this body, to simplify the system of making 
exchanges and settling the daily balances; and that 
when a room is procured or hired for the above pur- 
pose, the president or cashiers be requested to meet 
weekly until a plan is agreed upon." In com_pliance 
with this request, the committee presented a plan for 
the daily settlement of balances, at a meeting held on 
August 31, 1853, which plan v/as amended so as to pro- 

20040 — 10 II 153 



National Monetary Commission 

vide "that a room be procured for that purpose, suffi- 
ciently large to afford suitable accommodations." 

On September 13, 1853, the scheme was adopted 
and the committee was "clothed with full power to 
hire a room, appoint a manager and clerks, and make 
all the necessary arrangements to carry the plan for 
a clearing house into effect." On October 4 the date 
for beginning operations was fixed for October 11. 
Accordingly, on the appointed day, the representatives 
of the banks, members of the association, met in a room 
which had been procured in the basement at No. 14 
Wall street, and made the first exchanges. The total 
clearings on that day were $22,648,109.87, and the 
balances were $1,290,572.38. These clearings have since 
been eclipsed by over $30,000,000 in the totals of a single 
bank. 

The clearing system in America was thus fairly 
launched, and from that time forth its success exceeded 
the expectations of even its most ardent projectors. 
The association consisted at that time of 52 banks, 
banded together for their common good, which, as they 
then conceived, consisted solely in the exchange of items 
and settlement of balances at a uniform time and place. 
For nearly a year the operations were conducted with- 
out a constitution. The adoption of such an instrument 
was opposed, on the ground that it was not needed and 
might lead to a dangerous concentration of power in 
the hands of a few managers, who might use it for per- 
sonal aggrandizement, or for the exercise of an arbi- 
trary supervision. But the need of fixed rules of some 



154 



Clearing-House Methods 

sort for their guidance became more and more urgent, 
and on February 28, 1854, one of the bank officers 
"recommended that an act of incorporation be obtained 
for the clearing house, or that some other form of or- 
ganization be adopted, with a constitution and laws 
for its government, providing for regular meetings of 
bank officers." 

A constitution was drafted by George Curtis, and 
upon June 6, 1854, it was adopted and ordered sent 
to the several banks for their action. Upon August 
I it was signed by each of the members and thereby 
put into full force and operation. This instrument, 
with the changes that have been made from time to 
time by the adoption of amendments and resolutions, 
is in force at the present day. 

The subject of proper accommodations for the trans- 
actions of the clearing house was frequently considered. 
As already shown, the original location was fixed at 
No. 14 Wall street, but the quarters were not entirely 
suitable, and hence, on May i, 1854, the seat of oper- 
ations was transferred to No. 82 Broadway. At a 
meeting held in May, 1857, a committee was appointed 
to consider the subject of removal from that locality. 
One month later the committee reported in favor of 
occupying a room in the building of the Bank of New 
York, at No. 48 Wall street, and their report was adopted. 
In March, 1858, the association first met in the new 
rooms. At a meeting held five years thereafter, the 
question of removing to a more central location was dis- 
cussed, but it was voted to be inexpedient to consider 
the subject of removal at that time. 

155 



National Monetary Commission 

At a meeting on the 24th of June, 1868, a committee 
was appointed to select suitable rooms for the use of 
the clearing house and meetings of bank officers; and 
the chairman of the committee, in his report to the 
association on October 15, 1869, stated that they ''had 
been unable to find such rooms; but that the building 
then being erected by the Equitable Life Insurance 
Company, on Broadway, corner of Cedar street, had 
been under consideration, but it was found that suffi- 
cient and suitable room could not be had in that build- 
ing, and recommended that the association purchase 
a building and fit it up to meet the wants of the clear- 
ing house and the banks." At a subsequent meeting 
the committee was requested by resolution to renew 
their efforts to procure suitable rooms. Meanwhile 
the association had been accumulating a building fund, 
which by October, 1874, amounted to over $90,000. 

Some time expired before an opportunity offered for 
the purchase of available property. Finally, the National 
Bank of the Commonwealth Building, on the corner of 
Nassau and Pine streets, was advertised to be sold at pub- 
lic auction on October 13, 1874, and the committee was 
instructed by a vote of 41 to 5 to purchase it at any price 
that was satisfactory to it. Accordingly, the committee 
attended the sale and purchased the property for $215,000. 

In payment of this sum, $75,000 was borrowed on the 
securities in the hands of the committee, and for the re- 
maining cost and contemplated improvements in the build- 
ing a draft was made upon the associated banks, at the 
rate of twenty-two one-hundredths of i per cent on their 



156 



Clearing-House Methods 

respective capitals. In return therefor each bank received 
a certificate from the trustees, with the stipulated agree- 
ment that it should receive thereafter a proper considera- 
tion for the amount advanced. Subsequent drafts were 
made upon the members, in proportion to their capital, as 
in the previous instance, for the purpose of defraying the 
cost of improvements, including the furniture and fixtures 
of the new building. The drafts in total amounted to 
three-tenths of i per cent of the respective capitals of the 
banks. In return for the amounts so advanced certifi- 
cates were given as before. 

The bank building was properly altered and equipped 
for the transactions of the clearing house, and on June 17, 
1875, "tlie premises were occupied . Here the clearing house 
remained for the next twenty-one years. At a meeting of 
the association, April 20, 1892, the attention of the clear- 
ing-house committee was called to the probable necessity 
of securing before many years a larger and more commo- 
dious building for clearing-house purposes. As the result 
the committee was instructed to consider the matter and 
report. The same committee, in conjunction with the 
trustees, was authorized at a meeting on December 29, 
1893, to acquire for use of the association the property 
known as 79 to 83 Cedar street and to sell the property on 
the corner of Pine and Nassau streets. 

A meeting of the association was held January 16, 1894, 
when it was unanimously resolved ' * that the clearing-house 
committee be authorized to organize a corporation to take 
title to the property just purchased, to be known as the 
New York Clearing House Building Company; to draw 



157 



National Monetary Commission 

upon all the banks represented, in proportion to their re- 
spective capitals and surplus, for all money needed to pay 
for the said property, and for the erection, fitting up, and 
furnishing of a building thereon, suitable for the use of 
the association; to issue to each of the banks so paying a 
receipt for such payment, in such form as shall be approved 
by counsel, and to apply the money so received to the pur- 
chase of the said land, and to supply the said building com- 
pany with funds to defray the cost of the erecting and fur- 
nishing of the said building. " 

A form of receipt was adopted, certifying that the bank 
specified therein had paid to the clearing-house association 
the sum named toward the purchase of the real estate in 
Cedar street for the use of the banks, members of the asso- 
ciation, and that the said bank is entitled to interest upon 
the said amount at the rate of 5 per cent, and further pro- 
viding that the bank shall not transfer the certificate while 
a member of the association; and if it shall at any time 
cease to be a member, then the association shall have a prior 
right to purchase the certificate at a price not exceeding the 
amount named and interest. 

The Cedar street property was duly bought and the 
corporation organized to take the title. The capital stock 
of the corporation was fixed at $900,000. For this 9,000 
shares were issued — 8,975 in the name of the president of 
the clearing-house association and 25 in the name of the 
5 directors of the Clearing House Building Company, who 
held the same in trust. The banks paid to the clearing- 
house committee the full amount of the shares, for which, 
in turn, they received the certificates. In addition, the 



158 



Clearing-House Methods 

sum of $230,000 was collected from the members as a final 
assessment for the erection of the new building, and for 
this amount certificates were issued in due form, and these, 
with the $900,000 previously issued, made $1,130,000 of 
certificates outstanding. The final report of the commit- 
tee showed that the cost of the building was $1,099,569.72. 

The new building, two views of which are given here- 
with, in which the association took up its abode in the 
middle of January, 1896, is built of white marble, in the 
Italian renaissance style. It is an adornment to the city 
and is one of the architectural gems of the world. 

Thus we have seen that the association occupied four 
different locations before coming into the structure erected 
for its own use; and that after each removal it remained 
longer than it had in the quarters just abandoned. 

The constitution of the New York clearing house pro- 
vides in full for the regulation of the affairs of the associa- 
tion and for the guidance of its members. A general 
meeting is held annually, and special meetings may be 
called by the clearing-house committee whenever it may 
deem it necessary, or whenever it is requested to do so by 
any seven of the associated banks. A majority of the 
whole number of associated banks constitutes a quorum. 
Each bank may be represented at all meetings of the asso- 
ciation, and is entitled to one vote. 

The administration of the clearing house is vested in a 
president, secretary, manager, assistant manager, and 
five standing committees. 

The president is elected by ballot at the annual meet- 
ing, to preside at that meeting and all subsequent meet- 



159 



National Monetary Commission 

ings during the year. He is ex officio member of all com- 
mittees except the committee on nominations. In his 
absence a chairman pro tempore is appointed. 

The secretary is elected at the same meeting, and it is 
his duty to record the minutes of each meeting of the asso- 
ciation. 

The manager, under the control of the clearing-house 
committee, has full charge of all business at the clearing 
house, but before entering upon his duties he is required 
to give bond in the sum of $10,000. The clerks of the 
establishment, as well as the settling clerks and porters 
of the several associated banks, while at the clearing house, 
are under his direction. He superintends the operation 
of clearing, the adjustment and settlement of balances, 
the keeping of the records of transactions as they take 
place from day to day, the preparation and publication of 
the weekly bank statements, and, in a word, attends to all 
the detail work of the clearing house. He imposes and 
collects fines from the members for the violation of clear- 
ing-house rules and acts as secretary of all the committees 
when they meet at the clearing house. 

Although the constitution provides for the appointment 
of a manager annually, it is the custom to retain the same 
one in office year after year. As a fact, there have been 
only three managers in the whole history of the associa- 
tion. The first, George D. Lyman, served until 1864, 
when he was succeeded by William A. Camp, who, after 
a long and honorable career of twenty-eight years as 
manager, resigned in 1892, and William Sherer, who had 
been assistant manager, was appointed to succeed him. 
The present assistant manager is William J, Gilpin. 

160 



Clearing-House Methods 

The various committees of the clearing house embrace 
the clearing-house committee, the conference committee, 
the committee on admissions, the nominating committee, 
and the arbitration committee. Each committee consists 
of five members. The first three committees were pro- 
vided for in the constitution originally adopted. The 
committee on arbitration was proposed in an amendment 
January ii, 1855, by George Curtis, who drafted the con- 
stitution. This amendment was subsequently adopted. 
On September 22, 1871, the nominating committee was 
created by resolution. Besides these, a loan committee 
has been appointed on special occasions, whose functions 
are described in the chapter on clearing-house loan certifi- 
cates. 

The clearing-house committee is clothed with almost 
absolute power, being second in authority only to the asso- 
ciation itself. The ablest and most experienced bank 
officers, therefore, are usually chosen to serve on it. The 
committee is elected annually, and is charged with the 
responsibility of equipping the clearing house with furni- 
ture, providing fuel, stationery, and whatever else is neces- 
sary for the convenient transaction of its business, of ap- 
pointing a manager and his subordinates, of establishing 
rules and regulations to be observed at the clearing house 
not provided for in the constitution, always, however, 
subject to the approval of the association, and of generally 
supervising the clearing-house affairs. This committee 
has charge of the funds belonging to the association and 
draws on each bank for its quota of expenses. At the 
first meeting of the association after the election of the 



161 



National Monetary Commission 

committee it submits detailed estimates of the expendi- 
tures that will be required for the clearing house during 
the current year. It fixes the salaries of the clerks and 
approves the bonds which are required before they can 
enter upon their duties. It has power to remove the mana- 
ger or any of the clerks whenever it may deem it for the 
best interests of the association so to do. The committee 
is also empowered to examine, if necessary, any member 
of the association, and to require therefrom securities of 
such an amount and character as may appear to it to be 
sufficient for the protection of the balances resulting from 
exchanges at the clearing house. By resolution adopted 
October 14, 1890, this committee is empowered to permit 
or refuse to any member the privilege of clearing for an 
outside institution. 

The conference committee is annually elected, and its 
function is, in concurrence with the clearing-house com- 
mittee, to suspend any bank from the privileges of the 
clearing house, in cases of extreme necessity, until the 
pleasure of the association is ascertained thereon. No 
such suspension, however, can take place unless a ma- 
jority at least of each of these two committees is present 
at the ordering thereof, or unless the vote be unanimous. 
In case of suspension the committee is required to call a 
general meeting of the association to take the matter into 
consideration. 

The committee on admissions is elected at each annual 
meeting, and the clearing-house committee refers thereto 
for examination all applications for admission into the 
association. 



162 



Clearing-House Methods 

The nominating committee is also elected annually, 
and its duty is to present to the association at each annual 
meeting the names of candidates for president and sec- 
retary of the association and for members of the clearing 
house, nominating, conference, and arbitration committees 
and committee on admissions, on the following basis: The 
president and secretary are eligible for two successive 
years, and after an interval of one year they are again 
eligible in like manner. There must be selected every 
year at least two new members on each of the committees 
(having still three old members), and those who have 
been longest on the committees must go off first. If all 
have been on the same length of time, then two must go 
off by lot. After an interval of one year such members 
are again eligible. 

The function of the arbitration committee is to hear 
and determine all disputes submitted to it by both parties 
thereto, one or both of which are members of the associa- 
tion. It is the duty of this committee also to record a 
brief abstract of each case referred to it, together with 
its decision thereon, in a book provided for that purpose 
which is kept at the clearing house, open to the inspection 
of all the members. 

The association at present (1909) consists of 50 mem- 
bers (32 national banks and 18 state banks) and the 
United States sub treasury located at New York. The 
latter makes its exchanges only at the clearing house, its 
balances being settled at its own counter. It has no 
voice in the government of the association, and pays a 
nominal sum for actual expenses. The privilege which 



163 



National Monetary C ommis s io 



n 



the sub treasury enjoys of making its exchanges through 
the clearing house is a matter of great accommodation 
both to the subtreasury and to the banks. The New 
York post-office clears through one of the members, but 
renders no compensation to the association for the privilege. 

The membership of the association since its organiza- 
tion has been constantly changing, owing to the admis- 
sion and expulsion of members and voluntary withdrawals, 
as provided by the constitution. 

The association began with 51 members, but by 1858 
the list had declined to 46, the lowest number in the history 
of the clearing house. A membership of 67 was attained 
in 1895. 

On February 28, 1854, the Bank of the Union was ex- 
pelled and the clearing-house association was authorized 
to return to it whatever amount was necessary to offset 
its advances toward the expenses of the clearing house. 
In the following December the Empire City Bank was 
expelled and a similar resolution was passed but in no 
case thereafter were any such refunds made. 

The association came into existence, as has been stated, 
in 1853, l^^t it was not until February 29, 1856, that the 
first additional bank was admitted, four banks having 
been expelled in the meantime. The list continued to 
vary from time to time at irregular intervals, until at 
present there is one less member than when the associa- 
tion started. 

The constitution is very explicit in its terms governing 
the admission and conduct of members. Applicants are 



164 



Clearing-House Methods 

first considered by the clearing-house committee and 
referred hence to the committee on admissions. The 
latter committee, if, in its opinion, after a careful exami- 
nation, the applicants are qualified for membership, refers 
them to the association for final action, a three-fourths 
vote of those present being necessary to admission. Banks 
may be elected to membership at any meeting of the asso- 
ciation, but before being considered by the clearing-house 
committee each applicant must be shown to have an unim- 
paired capital or an unimpaired capital and surplus of at 
least $500,000. Bach new member is required to signify 
its assent to the constitution, in the same manner as the 
original members, and pay an admission fee, according to 
capital, as follows: A bank the capital of which does not 
exceed $5,000,000 must pay $5,000; a bank the capital 
of which exceeds $5,000,000 must pay $7,500. Any 
member increasing its capital is required to pay in accord- 
ance with those rates. 

The admission charges have not always been the same. 
The original members paid no admission fee. In the 
constitution, as originally adopted, the rate was fixed at 
$500. This was raised to $1,000 by an amendment 
adopted October 11, 1854. Under the constitution, as 
revised in 1865, the fees were based on the capital as 
follows: For banks whose capital did not exceed $500,000 
the rate was fixed at $1,000; for those whose capital did 
not exceed $1,000,000, at $2,000; for those whose capital 
did not exceed $2,000,000, at $3,000; for those whose 
capital did not exceed $3,000,000, at $4,000; for those 



165 



National Monetary Commission 

whose capital did not exceed $5,000,000, at $5,000; and 
for those whose capital exceeded $5,000,000, at $7,500. 
On October 3, 1893, the amendment was adopted, fixing 
the rates on the present basis. 

The power of expulsion is lodged in the association, but 
can be exercised only by a majority vote of all the mem- 
bers. The power of suspension is vested jointly in the 
conference and the clearing-house committees. Any mem- 
ber may withdraw at pleasure after paying its due propor- 
tion of all expenses incurred and signifying its intention 
to withdraw to the clearing-house committee. 

There were some 57 banks in operation in New York 
when the clearing house was organized, and all but 5 came 
into the association, those remaining outside being small 
institutions. Subsequently two or three of these applied 
for admission, but inasmuch as they were not deemed 
capable of meeting the requirements imposed upon the 
existing members, they were rejected. At the present 
time only about 45 per cent of the financial institutions of 
the city, which included national banks, state banks, and 
trust companies, are members or nonmembers clearing 
through members of the clearing-house association. 

In New York and vicinity are 32 banks and trust com- 
panies nonmembers, as compared with the 50 members. 
The nature of the business of the nonmembers, however, 
quite as much as that of the member banks, demands that 
their exchanges go through the clearing house, and hence 
each such bank or trust company makes a special arrange- 
ment with some member to act as its clearing agent, upon 



166 



Clearing-House Methods 

such terms of security as they may agree upon. As above 
stated, there are 32 outside institutions at the present 
time making their exchanges in this way. 

At the beginning, the subject of clearing for nonmem- 
bers naturaUy did not attract much attention, but as the 
city grew in business importance and its banks increased 
in power and numbers, it began to be more seriously con- 
sidered. Several amendments were made to the constitu- 
tion, designed to regulate the action of nonmembers and 
determine their relation to members. On January 11, 
1855, George Curtis, to whom reference has already been 
made as the author of the constitution, proposed the first 
amendment on this subject, which was subsequently 
adopted as follows: 

"Whenever exchanges shall have been made at the 
clearing house, by previous arrangement between members 
of the association, through one of their number and banks 
in the city and vicinity who are not members, the receiv- 
ing bank at the clearing house shall in no case discontinue 
the arrangement without giving previous notice, which 
shall not take effect until the exchanges of the morning 
following the receipt of such notice shall have been com- 
pleted." 

It will be observed that no provision is made for the 
protection of banks against the insolvency of nonmem- 
bers, but that the clearing member is made responsible for 
the items drawn upon the nonmember, and is prevented 
from discontinuing such responsibility until the exchanges 
are completed on the day following the receipt of such 



167 



National Monetary Commission 

notice. The next resolution on the subject was adopted 
ten years later, and is as follows: 

Resolved, That no member of the clearing-house association shall be 
allowed to make the exchanges for or redeem the notes or checks of any- 
other bank or banks, not members of said association, without first giving 
notice, over the signature of one of its officers, of the fact of such redemp- 
tion; nor shall such redemption be discontinued but upon notice in the 
manner prescribed by section 25 of the constitution. 

Here for the first time a requirement was made of the 
banks that they should give notice of their intention to 
clear for nonmembers. Again, in the same year, another 
amendment followed. Thus: 

Whenever any member of the association shall send through the clear- 
ing house, exchanges of any bank or banks in the city or vicinity v/ho are 
not members, such sending shall ipso facto and without further notice con- 
stitute said member the agent for said bank or banks at the clearing house ; 
and said member shall be liable in the premises, the same as for its own 
transactions, and its liability in all such cases shall continue until after the 
completion of the exchanges of the morning next following the receipt of 
notice of discontinuance of any such agency. 

This virtually repealed the former resolution requiring 
notice of the creation of a clearing agency. It continued 
the requirement of a previous notice before discontinuing 
such agency, and clearly established the measure of lia- 
bility of the clearing member for the items of the non- 
member. As if to reenforce the above resolution, another 
was adopted in May of the following year, as follows: 

Resolved, That the liabilities of banks in the clearing house doing busi- 
ness for the banks in the vicinity are, under the amendment to the consti- 
tution, passed April 26, 1865, the same as for their own transactions. 

Clearing for nonmembers continued for nearly a quarter 
of a century without further regulation. Finally, in 1890, 
new troubles arose from the failures of two small banks 
clearing through member banks and the looting of the 



168 



Clearing-House Methods 

Sixth National Bank, a member. Accordingly, the whole 
subject of clearing for nonmembers was most carefully 
investigated and considered. Many favored its discon- 
tinuance altogether, and finally the subject w^as referred 
to a committee. A majority of the committee reported in 
favor of discontinuance, and a minority in support of the 
prevailing plan. The association adopted the views of the 
minority and voted to continue on the existing basis. 
This led to the following resolution, adopted October 14, 
1890: 

Resolved, That on and after January i, 1891, this association permits its 
members to make such exchanges only after the consent of the clearing- 
house committee is obtained ; and the banks or parties have obligated them- 
selves to pay to the clearing-house association an annual payment of two 
hundred dollars, and also to consent to the same examinations as are now 
required of its members : Provided, however, That nothing contained in this 
resolution is construed as making such banks or parties members of the 
association. 

Thus, discretion regarding the clearing for nonmem- 
bers was taken out of the hands of the members and trans- 
ferred to the clearing-house committee, and for the first 
time nonmembers were required to pay to the associa- 
tion a definite sum in consideration of the privileges ex- 
tended to them. Again, on December 21, 1896, the con- 
stitution was amended as follows : 

Resolved, That the amendment to the constitution adopted October 14, 
1890, assessing banks and others not members of this association, and 
clearing through members, $200 annually, be amended by increasing such 
amount to $500 annually, this amendment to take effect on and after 
January i, 1897. 

Later, the amount was still further increased to $1,000, 
at w^hich figure it still stands. 

A resolution was also passed, to take effect on the same 
date, requiring all banks, not members of the association, 

2 0040 — I O 12 169 



National Monetary Commission 

whose checks are exchanged at the clearing house, to fur- 
nish the manager weekly statements of their condition, 
showing the average amount of their loans, discounts, 
and investments; specie, legal-tender notes, and bank 
notes; deposit with clearing-house agent, deposit with 
other New York City or Brooklyn banks and trust com- 
panies, net deposits and circulation. These statements 
were intended for the records of the clearing house and 
not for publication; but a resolution was subsequently 
passed requiring that they be published, beginning with 
the first Saturday in November, 1897. 

Thus it will be seen that by resolutions and amend- 
ments covering nearly the whole period of its history, 
the New York Clearing House Association has been 
developing the present system, regulating the conduct 
of those outside institutions, which enjoy the privileges 
of the clearing house. 

The relationship of trust companies to the clearing 
house, particularly in view of the number of trust com- 
panies organized and entering upon business during the 
few years prior to, and including, 1899, had been a sub- 
ject for careful consideration on the part of the manage- 
ment. A subcommittee of the clearing-house committee 
was appointed October 26, 1899, to inquire into the mat- 
ter and make a report. The report of this subcommittee, 
the substance of which is given below, was adopted at a 
meeting of the association held on the 3d of November, 1 899. 

The report at the outset recites that the constitution 
of the association, particularly the amendment of October 
14, 1890, imposes upon the committee the responsibility 



170 



Clearing-House Methods 

of consenting to the clearings by banks and trust com- 
panies not members of the association. The report then 
continues, that in the opinion of the subcommittee gen- 
eral and uniform rules should from time to time be 
adopted. Therefore, the following were recommended: 

No trust company shall be permitted to clear through any member or 
nonmember of this association, unless such trust company shall have been 
in operation for at least one year at the time of making the application. 

No trust company shall be cleared by any bank or trust company, mem- 
ber or nonmember of this association, until it shall have been examined 
by the clearing-house committee or some other committee of the associa- 
tion duly appointed for that purpose. 

Every trust company clearing through a member of this association, or 
which may hereafter be permitted to clear through such member, shall 
furnish a weekly statement of its condition to the manager of this associa- 
tion, in the same manner as weekly statements of nonmemiber banks clear- 
ing through this association are now rendered. Such statements shall 
include: Capital; net profits; average amount of loans, bills purchased, 
and investments (not real estate); average amount of specie; average 
amount of legal-tender notes and bank notes; average amount on deposit 
w^ith other New York City banks and trust companies; average amount of 
deposits. 

In the notice sent out by the manager of the clearing 
house November 6, 1899, embodying the foregoing, it 
was asserted that the statements required of the trust 
companies were not for the present intended for publica- 
tion. The form of statement provided for use in this 
connection is given among the illustrations. 

At the meeting of the clearing-house committee above 
referred to, it was resolved that from that date forward 
every statement of averages submitted to the clearing 
house by a member or nonmember should be verified and 
signed by an officer. 

Most of the important trust companies in the city, 
under the new provisions, became associated with the 
clearing house as nonmembers. 

171 



National M on et ar y Commission 



New York, 

At a meeting of the * Board of Directors of tJie 

of. Tield 

tJie following resolution was adopted: 

^^Mesolved: That this Board hereby agrees to the 
payment of One Thousand (SI 000) Dollar's per annum, 
for the purpose of making its exchanges through a Bank, 
member of the New York Clearing-house Association. 

"And this Board also consents to the same examina- 
tions of this ". as are now 

required of members of the Clearing-house Association.'' 



* This title may he changed to read 
^' Board of Trustees, Executive Committee, cfec," as necessary. 



Resolution Authorizing Exchanges Through a Member Bank. 

172 



Clearing-House Methods 



Jfeiu Yorlc,. 



19 



Chairman Cl^earing-hauae Committee 
Bear Sir: 

The .. 

o f _„ hereby applies 

for consent of the Clearing-house Committee to mahe the 

Exchanges fvr^ _. 

of^....^ on and after . - . - 



Statement of its condition enclosed. 
Respectfully, 



Approved. 



Application to Clear for Another Bank. 



173 



National Monetary Commission 



Mpiu fork (Elparmg-tiouae, 

•Nos. 77-83 CEDAR STREET. 



M'eiv TorJc, „ 



.J£sq., Cashier. 



Dear Sir: 

Consent of the Clearing-house Committee is h^eby 

given to the ,.. „ 

of , ^ to make the exchanges at the 

JVew Yorh Clearing-house for the 

of.. ._.. „ on wrid after. 

sitbject to the rules and regulations of the Association. 



Bycjrderof _ „ 

Chairman Clearing-house Committee. 



.Manager. 



Consent to Clear for Another Bank. 



^74 



CI 



earing 



H 



u s e 



Methods 



NEW YORK CLEARING-HOUSE. 

The Weekly Statement as provided for below must be certified by 
an officer and sent to the Clearing-house at the close of business on 
Friday of each week. 

WILLIAM SHERER, 

Manager. 

COPY OF STATEMENT 



. , , for week 

ending the day of 190 .... 

as required by Amendment to Section 25 of the Constitution of the 
New York Clearing-house Association, adopted February 11th, 1903. 



Average Amount of Loans, and Discounts 
and Investments (not Real Estate) 

Average Amount of Specie. 

Average Amount of Legal Tender Notes 
and Bank Notes. 

Average Amount on Deposit with Cleaf- 
ing-house Agent. 

Average Amount on Deposit with othef 
New York City Banks and Trust 
Companies 

.Average Amount of Deposits 

Average .\mount of Circulation 



Correct. 



Form of Statement of Weekly Averages of Non-Membkr 

Banks. 



175 



National M on et ar y Commission 



The Weekly Stfettement as provided for below must be certified by an 
officer and sent to the Clearing-house at the close of business on Friday 
of each week , 

WILLIAM SHERER, 

Manager. 

COPY OF STATiEMENT 

OF THE, 

for week 

ending the day of 190. . . . 

as required by Amendment-4o Section 25 of the Constitution of the 
New York Clearing-house Association, adopted February 11th, 1903. 



Average Amount of Loans, Bills Pur- 
chased and Investments (not Real 
Estate) 

Average Amount of Specie 

Average Amount of Legal Tender Notes 
and Bank Notes. 

Average Amount on Deposit with other 
New York City Banks and Trust 
Companies 

Average Amount of Deposits 



Correct .. 



Form op Statement of Weekly Averages for Trust Cqm?anies. 



176 



Clearing-House Methods 

The arrangement thus consummated, however, was to 
last but a few years. The New York state banking law 
at that time did not require that trust companies should 
carry any cash reserve, while it provided for the keeping 
by state banks of a cash reserve in their own vaults of 
15 per cent. It was tacitly understood that a cash 
reserve of 25 per cent should be maintained by all the 
members of the New York Clearing House Association, 
although there was then no constitutional provision to 
that effect o This understanding did not, however, ex- 
tend to nonmembers, with the result that the state banks, 
generally speaking, merely met the requirement of the 
law, viz, 15 per cent, and the trust companies used their 
discretion. 

As will be readily observed, the trust companies, oper- 
ating under broad charters which gave them the privilege 
of transacting a banking business, of which by far the 
greater number took advantage, and with, as before 
stated, no reserve requirement, had an immense advan- 
tage over the members of the clearing house, and were 
thereby enabled to make considerable inroads into their 
business. 

This condition of affairs caused a great deal of dis- 
satisfaction among the associated banks, which culmi- 
nated in an effort on the part of the association to more 
nearly equalize the position of the banks and trust com- 
panies, which took the form of the following resolution, 
enacted into law on February 11, 1903: 

Every nonmember institution (not a bank required by law to maintain 
a specified reserve) now or hereafter sending its exchanges through a 
member of the association, shall on and after June i, 1903, keep in its 

177 



National Monetary Commission 

vaults a cash reserve equal to 5 per cent of its deposits; and on and after 
February i, 1904, such cash reserve shall be 7^ per cent of its deposits^ 
and on and after June i, 1904, such cash reserve shall be such percentage 
as shall from time to time be fixed by the clearing-house committee, but 
not less than 10 nor more than 15 per cent of its deposits. The reserve 
hereby required shall be an average reserve as against the average deposits 
as shown upon its weekly statements. 

The trust companies resented very strongly this at- 
tempt to force them to keep a cash reserve, and during 
the next two years, almost without exception, withdrew 
from the privileges of the clearing house, rather than 
submit to its regulations in this regard, manifestly fair 
though they were. 

After the panic of 1907, the attitude which the New 
York clearing house had assumed on this question was 
justified, when the legislature of the State of New York 
enacted a law compelling the trust companies in New 
York to keep a cash reserve of 15 per cent, thus placing 
them on an equal basis, in this respect, with state banks. 

In the meantime, on January 13, 1908, the clearing- 
house association met and passed the following resolu- 
tions, which still obtain and determine the conditions 
under which the trust companies may, at the present 
time, become full members of the association, the same 
as banks: 

Trust companies organized under the laws of the State of New York 
may be admitted as members of this association in the same manner and 
to the same extent as banks may be admitted, and when so admitted 
shall be entitled to all the rights and benefits and subject to all the con- 
ditions and obligations to which bank members are or shall be entitled or 
subject under the provisions of the constitution. 

Trust companies, however, becoming members of the association, shall 
be required to keep a cash reserve in their own vaults of not less than 
25 per cent of their deposits. A failure to keep such reserve shall be 
sufficient ground for action under section 6, Article III, of the constitu- 
tion (which provides for expelling members). 

178 



Clearing-House Methods 

Three days later, viz, January i6, 1908, the associa- 
tion for the first time in its history passed a measure 
which thereafter compelled all its members to keep and 
maintain in their own vaults a cash reserve of 25 per 
cent of their net deposits. 

Each bank belonging to the New York Clearing House 
Association is required to furnish to the manager weekly, 
for publication, a statement of its condition, showing 
the average amount of loans and discounts, specie, legal- 
tender notes, circulation, and deposits. The capital and 
net profits also are given, this being the only association 
which gives the latter item. 

The matter of collecting checks and other items out- 
side of the city of New York is a subject that for many 
years past has received most careful thought upon the 
part of the oflicers and members of the New York clear- 
ing house. An amendment to the constitution was 
adopted, March 13, 1899, directly bearing upon this point 
and embodying a policy that was so radical as not only 
to attract attention throughout the entire financial com- 
munity, but at the outset to incite more or less opposition. 
As time has passed, however, the justness of the pro- 
visions has become apparent and the business community 
has acquiesced in what is manifestly an entirely reason- 
able measure. 



179 



National Monetary C ommis s io 



n 



TRUST COMPAHIES. 








1 


Resoueces. 
Bonds & Mortgages 








Stocks & Bonds (Market Value): 
Public Securities 








Other Securities 








Loans 








Overdrafts 








Real Estate, Furniture & Fixtures 








Due from Trust Cos., Banks and 
Bankers . 








Specie 








Legal Tenders and Bank Notes 
















Other resources 








Total 














Book Value Stocks and Bonds 
















Liabilities. 
Capital 








Surplus and Undivided Profits 








Due Trust Cos., Banks and Bankers. 
Deposits (Not Preferred) 














Certificates of Deposit (Not P'f 'd) . . . 








Preferred Deposits 

























Other Liabilities 








Total 
































































1 



Form of Statement Required by the New York Clearing- 
house Association of Trust Companies. 

i8o 



Clearing-House Methods 



NATIONAL BANKS. 
Ko 


254007 


Liabilities. 
Capital 








Net Profits 








Circulation 








Due Banks and Trust Co's 








Dup other Deoositors 








Unpaid Dividends 








Bonds Borrowed 
















Total 














Resources. 
Loans and Discounts 








U. S. Bonds on hand 








TJ S Bonds to secure circulation 








Bonds to secure U. S. Deposits 









Other Stocks and Bonds and Mtgs 









Premium on U. S. Bonds 








Real Estate, Furniture & Fixtures. . 








Due from Banks and Bankers 








Exchanges for Clearing-house 








Cash Items and Bank Notes 








Specie 








Legal Tenders 








Over Drafts 
















Total 








Certified Checks 








United States Deposits 










r — — " 






1 







Form Used at Clearing-house in Tabulating National Bank 
Statements. 

i8i 



National Monetary C ommis s i o 



n 



STATE. 

254008 


Liabilities. 
Capital 








Net Profits - . . . 








Due Trust Cos., Bks., Bkrs. & Broks. 
Due other Depositors not Pfd 














Preferred Deposits' 








Unpaid Dividends j 










! 






Total ... .... 






b 






Resources. 
Loans and Discounts 








Stocks, Bonds and Mortgages. ...... 








Real Estate, Furniture & Fixtures . . 

Due from Trust Cos., Bks., Bkrs.. 
& Broks. not incld'd in next item. 

Due from Approved Reserved De- 
positories . 














Cash Items including Exchanges for 
Clearing-house 
















Legal Tenders and Bank Notes .... 
Over Drafts 






















TOT.AL 










■ • ■ • 










- - - - - \ 



FoEM Used at Cleaeing-piouse in Tabulating State Bank 

Statements. 



182 



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NEW YORK CLEARING-HOUSE. 



SUMMARY OF WEEKLY STATEMENTS. 



Week -ending, 









CLEARING-HOUSE BANKS, DAILY AVERAGE 










Loans, S 
Specie, 

Legal Tenders, 
♦Deposits, 
CircuJation, 
















crease: 
crease, 
crease, 
crease, 
crease. 


Reserve on All Deposits, 

Reserve on Deposits Other than U. S. 

Cash Reserve % 


$ 


crease. 


«........-..-.••: 

*U. S. Deposits included $. . . .., 


crease. 


CLEARING-HOUSE BANKS, ACTUAL CONDITION THIS DAY 


Loans, $ 
Specie, 

Legal Tenders, 
fDeposits, 
Circulation, 
















crease, 
crease, 
crease, 
crease, 
crease. 


Reserve on All Deposits; % crease. 

Reserve on Deposits Other than U. S. $ , . .„ crease. 

Cash Reserve % jU. S. Deposits included $ , 


Clearings for the week 
Balances " " 












Clearlugij ilils liaj 
Balances " " 












SUMMARY OF STATE BANKS AND TRUST COMPANIES IN GREATER NEW YORK, 
NOT REPORTING TO THE NEW YORK CLEARING-HOUSE 


Loans, S 

Specie, 

Legal Tenders, 

Total Deposits, 

Do — Eliminating 
amounts due from Reserve 
Depositories and from 
other Banks and Trus 
Companies in New York 
City.^ 


i 

[ 












• 


crease, 
crease, 
crease. 
crease. 

crease. 


STATE BANKS 




RESERVE 
per cent. 




TRUST COMPANIES 






per cent. 


Cash in Vault 

Deposits in Banks 
and Trust Go's, 










Cash in Vault |l 

Deposits in Banks 
and Trust Go's, |l 








Total 










Total {{ 








Aggregate Reserve on Deposits $ crease. 
Percentage of Legal Reserve 



Form of Su.mmary of Weekly Statement of A-ssociated Banks. 
20040 — 10. (To face page 184.) No. i. 



NEW 

BOROUGHS 03 

Bank of Was! 
Century Ban) 
Colonial Banl 
Columbia Bai 
Fidelity Baul 

Jefferson Ban 
Mount Morris 
Mutual Bank 
Plaza Bank.. 
Twenty-third 

Union Exchs 
Yorkville Bai 
Coal and Iron 
New Netherli 
Battery Park 

Aetna NatioD 

BOROU 

Broadway Bi 
Manufacturer 
Mechanics' B 
Nassau Natio 
National Citj 
North Side B 

JE 
First Nationf 
Hudson Co. 1 
Third Nat'l 1 

I 

First Nations 
Second Natio 



*As per ofTici 
12 National I 
15 State Ban 
Reserve, 81,1: 
*As of July 1' 



NEW YORK CLEARING-HOUSE 

Weekly Statement of NON-MEMBER BANKS, for Week ending Saturday, July 24, 1909 



NEW YORK CITY. 



Bank of Washington Heights. 

Century Bank , 

Colonial Bank 

Columbia Bank 

Fidelity Bank 



Jefferson Bank 

Mount Morris Bank 

Mutual Bank 

Plaza Bank 

Twenty-third Ward Bank (Bronx). 



Union Exchange National Bank. 

Yorkville Bank 

Coal and Iron National Bank 

New Netherland Bank 

Battery Park National Bank 



AND 

Inve.st- 

MENTS 



AVERAGE 

Amount of 
Specie 



Aetna National Bank. 



BOROUGH OF BROOKLYN. 



Broadway Bank 

Manufacturers' National Bank. 

Mechanics' Bank 

Nassau National Bank 

National City Bank 

North Side Bank 



JERSEY CITY. 
Fu'St National Bank, Jersey City. 



Average 
Amount of 
Legal 
Tender 
Notes and 
Bank- 
notes 



Average 

Amount on 

Deposit 

with 
Clearing- 
house 
Agent 



Average 
Amount or 

Deposit 
with other 
New York 
City Bank 
and Trust 
Co's 



Average 

Amount op 

Net 

Deposits 



Average 

A mount OF 

Circula- 
tion 



Totals 

*As per official reports.— 
12 National Banks, June 23, 1909. 
15 State Banks, April 28, 1909. 
Reserve, 81,540,775 Decrease. 
*As of July IB, 1909. 



399,929,800 
Decrease 

252, 000 



S7, 510, 900 
Decrease 

387, 100 



Decrease 

531,990 



$12,147,000 84,349,000 
j 
Decrea,se iDecreas 

1,031,300 401,100 



$11(1. 000, liOO 
Decrease 
3,138,500 



$2, 448, 400 
Increase 

50,400 



Skeleton op Weekly Statement of Non-Member Bank,<^ 
(To face page 184.) No. 2. 



Clearing-House Methods 

The amendment to the constitution, being an addition 
to section 8, was as follows: 

The clearing-house committee shall have power to establish rules and 
regulations regarding collections outside of the city of New York, by mem- 
bers of the association or banks or trust companies or others clearing 
through such members, and the rates to be charged for such collections, and 
also providing for enforcement of the same. The committee may from time 
to time make any additions to, or changes in, such rules and regulations as it 
deems judicious. After any rule or regulation upon the subject has been 
once established, it shall not, however, be altered or rescinded until it has 
been in force at least three months, except by majority vote of the clearing- 
house association. 

Under this amendment the following rules and regula- 
tions regarding collections outside of the city of New York 
were adopted by the clearing-house committee: 

Pursuant to authority conferred upon it by the constitution of the New 
York Clearing House Association, the clearing-house committee of said 
association establishes the following rules and regulations regarding collec- 
tions outside of the city of New York, by members of the association, or 
banks, trust companies, or others clearing through such members, and the 
rates to be charged for such collections and also regarding enforcement of 
the provisions hereof. 

Section i. These rules and regulations shall apply to all members 
of the association, and to all banks, trust companies, or others clearing 
through such members. The parties to which the same so apply are 
hereinafter described as collecting banks. 

Sec. 2. For [items collected for the accounts of, or in dealings with 
the governments of the United States, the State of New York, or the city 
of New York, and for items payable in the cities of Boston, Mass. ; Provi- 
dence, R. I.; Albany, N. Y.; Troy, N. Y.; Jersey City, N. J.; Bayonne, 
N. J.; Hoboken, N. J.; Newark, N. J.; Philadelphia, Pa.; and Baltimore, 
Md., the charge shall in all cases be discretionary with the collecting 
bank, and the same shall not be governed by the provisions of these 
rules and regulations. 

Sec. 3. For all items from whomsoever received (except on those 
points declared discretionary in sec. 2), payable at points in Connecticut, 
Delaware, District of Columbia, Indiana, Illinois, Kentucky, Maine, 
Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New Jer- 
sey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, 
West Virginia, and Wisconsin, the collecting banks shall charge not less 
than one-tenth of i per cent of the amount of the items, respectively. 

20040 — 10 13 185 



National Monetary Commission 

Sec. 4. For all items from whomsoever received, payable at points in 
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, 
Idaho, Indian Territory, Iowa, Kansas, Louisiana, Minnesota, Mississippi, 
Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, 
Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, 
Utah, Washington, Wyoming, and Canada, the collecting banks shall 
charge not less than one-quarter of i per cent of the amount of the items, 
respectively. 

Sec. 5. In case the charge upon any item at the rates above specified 
does not equal 10 cents, the collecting bank shall charge not less than that 
sum; but all items received from any one person at the same time and 
payable at the same place may be added together and treated as one item 
for the purpose of fixing the amount chargeable. 

Sec. 6. The charges herein specified shall in all cases be collected at the 
time of deposit or not later than the loth day of the following calendar 
month. No collecting bank shall, directly or indirectly, allow any abate- 
ment, rebate, or return for or on account of such charges or make in any 
form, whether of interest on balances or otherwise, any compensation 
therefor. 

Sec. 7. Every collecting bank, trust company, or other corporation 
not a member of the association, but clearing through a member thereof, 
shall forthwith adopt by its board of directors a resolution in the following 
terms, and file a certified copy thereof with the association as evidence 
as therein specified: 

Whereas this corporation has acquired the privilege of clearing and 
making exchange of its checks through the New York Clearing House 
Association, and is subject to its rules and regulations: Now, therefore. 

Be it resolved, That this corporation hereby in all respects assents to 
and agrees to be bound by and to comply with all rules and regulations 
regarding collections outside of the city of New York which may be estab- 
lished pursuant to the constitution of said association, and that the presi- 
dent of this corporation is hereby instructed to file a certified copy of this 
resolution with the clearing-house association as evidence of such assent 
and agreement on the part of this corporation. 

Sec. 8. In case any member of the association shall learn that these 
rules and regulations have been violated by any of the collecting banks, 
it shall immediately report the facts to the chairman of the clearing-house 
committee, or, in his absence, to the manager of the association. Upon 
receiving information from any source that there has been a violation of 
the same, said chairman, or, in his absence, said manager, shall call a 
meeting of the committee. The committee shall investigate the facts and 
determine whether a formal hearing is necessary. In case the committee 
so concludes it shall instruct the manager to formulate charges and present 
them to the committee. A copy of the charges, together with written 
notice of the time and place fixed for hearing regarding the same, shall 

186 



Clearing-House Methods 

be served upon the collecting bank charged \\dth such violation, which shall 
have the right at the hearing to introduce such relevant evidence and sub- 
mit such argument as it may desire. The committee shall hear whatever 
relevant evidence may be offered by any person and whatever arguments 
may be submitted, and shall determine whether the charges are sus- 
tained. In case it reaches the conclusion that they are, the committee 
shall call a special meeting of the association and report thereto the facts 
with its conclusions. If the report of the committee is approved by the 
association, the collecting bank charged with such violation shall pay 
to the association the sum of $5,000, and in case of a second violation of 



J 899, the following preamble and resolution were 

adopted: 

Whereas this corporation has acquired the privilege of clearing and making ex- 
change of its checks through the New York Clearing House Association, and is subject 
to its rules and regulations: Now, therefore, 

Be it. resolved, That this corporation hereby in all respects assents to and agrees to be 
bound by and to comply with all rules and regulations regarding collections outside of the 
city of New York which may be established pursuant to the constitution of said associa- 
tion, and that the president of this corporation is hereby instructed to file a certified copy 
of this resolution with the clearing-house association as evidence of such assent and 
agreement on the part of this corporation. 



[seal.] 



Agreement to Compi^v with Rules and Regulations Regarding Collections. 
Outside oe New York. 

these rules and regulations any collecting bank may also, in the discre- 
tion of the association, be excluded from using its privileges, directly or 
indirectly, and, if it is a member, expelled from the association. 

By resolution of the clearing-house committee, the fore- 
going resolutions went into effect on the 3d day of April, 
1899. 

Most complete and accurate records are kept at the 
New York clearing house of all the transactions, both of 
the exchanges between the banks and of all the important 
acts relating to the administration. Six permanent em- 
ployees, subordinate to the manager and assistant man- 



1S7 



National Monetary Commission 

ager, are required to perform these duties, the attention 
of the latter two being almost wholly occupied in work of 
an administrative character. 

There are about twenty-five records, consisting of 
ledgers, statements, books, and registers. The most 
important are as follows : A record book containing a copy 
of the manager's proof sheet, showing the daily exchanges 
and balances of the several banks and the totals of the 
same; a ledger showing the exchanges and balances of 
each bank kept separately; the same being a compilation 
from the proof sheet; a registry book showing the bal- 
ances received at the clearing house each day; a record 
of the kinds and amounts of money received in payments 
of balances by days, months, and years since 1882; a 
weekly statement record showing the weekly statements 
required from members for publication; the statements 
made in response to the call of the Comptroller of the 
Currency and the state superintendent of banks, com- 
piled and recorded for the use of members of the associa- 
tion; an individual weekly bank statement introduced 
in 1892, being a compilation of the weekly statement by 
banks; a record of the increase and decrease in the items 
called for in the weekly statements; an annual record of 
comparative statements of footings of weekly statements; 
a record for the quarter begun in 1892, showing the re- 
sources, liabilities, dividends, and sales and book value 
of stock; a record of information, as complete as possible, 
regarding all the banks in New York City ; a record of the 
issue of clearing-house certificates upon the deposit of 
gold coin; gold and silver certificates and legal-tender 



188 



Clearing-House Methods 

notes and also upon the deposit of collateral security, with 
the loan committee when in session; a general statement 
of fines and corrections of clerks since 1877; a record of 
the returns, as far as possible, from the various clearing 
houses of the United States. 

There are about ten other records of less importance, 
besides the usual ledger, journal, and cash-book, in which 
the clearing house keeps its own accounts and the records 
of the proceedings of the various committees. 



189 



Chapter XIV. 

DAILY ROUTINE OF THE NEW YORK CLEARING 

HOUSE, 

THE CIvEARING ROOM — CLERKS AND MESSENGERS — THE 
manager's PART — HOW THE EXCHANGES ARE MADE — 
THE CASH BALANCE PAID IN — THE DISBURSEMENTS — 
CLEARING-HOUSE GOLD DEPOSITORY — RESTRICTIVE IN- 
DORSEMENTS — PRO RATING OF EXPENSES — RECORD OF 
PINES — TABLE OF ANNUAL CLEARINGS — TABLE OF AVER- 
AGE DAILY BALANCES. 

The clearing room of the New York clearing house is 
a beautiful and commodious apartment, 60 feet square, 
surmounted by a dome rising 25 feet above the walls. 
Light enters through the glass forming the upper part 
of the dome, and, when necessary, additional illumina- 
tion is secured by the use of electric lights, which encircle 
the base of the dome. Four rows of desks occupy the 
floor, with sufficient space between for an easy move- 
ment of the clerks in delivering the exchanges. Each 
member has its own numbered desk, separated from the 
one on the right and left by network of wire. At the 
east end of the room is the manager's gallery, elevated 
sufficiently to command an easy view of the scene of 
operations. It is made accessible in front by steps and 
in the rear by an elevator. 

Each business day, at 10 o'clock, the exchanges take 
place between the banks. About fifteen minutes before 

190 



Clearing-House Methods 

the hour designated the clerks begin to arrive. Formerly 
it was the custom for each member to send only two 
clerks, but so numerous and cumbersome have become 
the exchanges of many of the banks that it is now neces- 
sary to send one and sometimes two extra clerks to assist 
in transporting the items to and from the clearing house 
and in delivering the packages. 

The two essential representatives of each bank are 
the "delivery clerk" and the "settling clerk." The 
former delivers the packages brought, and the latter 
receives the return packages from the messengers of the 
other banks. 

Each member sends its items for the other banks made 
out separately and inclosed in envelopes, with the amounts 
listed on the "exchange slip" attached to the exterior. 
On their arrival at the house the settling clerks furnish 
the proof clerk, sitting at his desk in the manager's gal- 
lery, with the "first ticket," upon which is entered the 
"amount brought" or "credit exchange," and which 
the latter transcribes on the clearing-house proof under 
the head of "Banks Cr." The total of the amounts 
thus brought by the several clerks constitutes the right- 
hand main column of that sheet. If each messenger 
has a package for each of the other banks, there are 
2,500 in all to be delivered. 

As a fact, in all other respects than the quantity of 
packages, this is the number of transactions between the 
clerks, for it is found in practice better to use a blank 
slip than to omit a slip merely because there is no amount 
to put upon it. This plan saves doubt and unnecessary 



National M o n e t ar y Commission 

searching when looking after the proof. The stationery 
used by each of the several banks is put up in sets in 
numerical order, and this is a reason why it is easier 
to use all the slips than to discard those which happen 
to have no items. Accordingly, as the delivery clerks 
pass the desks, as is described farther on, it is the rule 
to deposit the "small ticket" with the receiving clerk 
in each case, whether there is a package corresponding 
to it or not. When the settling clerks come to make 
their summing up, first checking back by the small tickets, 
they find that the blank spaces in their sheets are justi- 
fied by the blank tickets of corresponding numbers, 
and are in this respect assured of the correctness of their 
work. 

When the hand of the clock points to a few minutes 
before lo o'clock the manager appears in his gallery, 
usually surrounded by a group of visitors. At one 
minute before lo he sounds a gong as a signal for each 
of the clerks to station himself in his proper place. The 
settling clerks occupy their separate desks on the inside 
of the counter, while the delivery clerks form on the out- 
side with their exchanges either on the left arm or car- 
ried in a box or case of some light material. The deliv- 
ery clerks arrange themselves in the consecutive desk 
order, and stand ready for delivery as they pass along 
the counter. They carry "delivery clerks' receipts" con- 
taining the amounts for each bank arranged in order, 
upon which the several settling clerks, or their assistants, 
give receipts for the package delivered. 



[92 



2d Teller* 

No. 1. 

BANK OF NEW YORK NAf L BANKING ASSOCIATION 

FROM No, 6x. 
THE FOURTH NATIOI^AL BANK. 

- - - 1909 



Form op Exchange Slip. 



No. 1. 
BANK OF NEW YORK 

NATIONAL BANKma ASSOCIATION. 

Prom No. 61 
Fourth National Bank. 



Fag-simile of " Small Ticket " Deposited by Mesw 

SENGER WITH §ETTLING ClEREL 



193 



National Monetary C ommis s io 



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194 



Clearing-House Methods 

All are now in position for the exchange. The manager 
calls "ready," and promptly at lo o'clock he somids the 
gong again and the delivery of the packages begins. He 
looks down upon four columns of young men moving 
simultaneously like a military company in step. At the 
start each advances to the desk in front where his first 
delivery is to be made. He deposits the package of items 
and also the receipt slip on which the assistant of the set- 
tling clerk (or, in the case of small banks, the settling 
clerk himself) writes his initials opposite the amount of 
the package delivered in the blank space provided 
for that purpose. At the same time, in an opening 
in the desk provided for that purpose, he deposits a " small 
ticket" containing the amount of the package. If cor- 
rect, it must agree with the amount listed on the ''ex- 
change slip." This process is repeated at the desk of all 
the banks, each clerk making the complete circuit in ten 
minutes to the point from which he started. 

Being now at liberty, each delivery clerk takes back to 
his bank the exchanges deposited by the other messen- 
gers, while the settling clerks remain until the proof is 
made. 

The settling clerks, immediately upon the completion 
of the exchange of packages, sum up, as quickly as possi- 
ble, the amounts entered on their statements under the 
head of ''Banks Dr." Upon ascertaining the total they 
make out a "second ticket," containing the credit and 
debit exchanges and the balance, and send the same to 
the "proof clerk," who transcribes the debit exchange 
under the head of "Banks Dr." (the credit exchange hav- 



195 



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197 



National Monetary Commission 

ing been already entered) , and the balance on the credit or 
debit side, as the case may require. 

While this is being done the settling clerks are checking 
back from the small tickets to ascertain whether the 
amounts agree with the amounts listed on their state- 
ments from the exchange slips. By this time the proof 
clerk has footed the four columns on his sheet, namely, 
the debit and credit exchanges and the debit and credit 
balances. If the former two agree with the latter two 
the work is correct, and the result is announced by the 
manager, who calls off credits and debits. 

As he calls off these balances, which are named in thou- 
sands of dollars, the hundreds and fractional parts being 
omitted, the clerks list the amounts on a special slip pro- 
vided for the purpose, and thereby secure a general report 
of the balances of the day to take back with them for the 
inspection of their several cashiers. By these reports the 
managers of the several banks are informed of those who 
have balances to be paid them by the clearing house, and 
also of those who are to pay amounts into the clearing 
house. 

The time elapsed since the manager sounded his gong 
for starting the work up to the completion of the proof 
is perhaps forty -five minutes, or possibly a little more. 
Three-quarters of an hour is the limit before fines are in 
order against those who have made the errors that pro- 
long the work, but it is not often that it becomes neces- 
sary to impose fines. The record time is thirty-five min- 
utes, although the dates when the proof has been reached 
in thirty -seven to forty minutes from the time the delivery 

198 



Clearing-House Methods 



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199 



National M on et ar y Commission 

clerks started on their rounds are numerous. When a 
particularly good showing in this regard has been accom- 
plished the announcement of the result by the manager 
is very likely to be greeted with applause. 

But suppose, as not infrequently happens, there is a 
discrepancy. The proof vsheet does not balance, which 
clearly indicates that there is an error in the work of one 
or more of the clerks. The manager immediately an- 
nounces the difference and the clerks proceed to search 
for it. 

Various methods are resorted to, according to the nature 
of the difference. Usually the manager calls for an ex- 
change of sheets, to the right or to the left, for examination 
of footings, and in cases of apparent error in entry the 
amounts are called back. This is the final method of 
revision, and if the additions are correct it must make the 
proof. 

Thus far no money has entered into the transaction. 
Checks, notes, drafts, and other items have passed 
through the exchanges, but as yet no occasion has arisen 
for the use of a single penny. Evidently, however, the 
clearing is not yet complete. Each member has in its 
possession paper drawn upon itself which the other mem- 
bers have credited on their books, and likewise each mem- 
ber has given in exchange to each of the other members the 
paper drawn upon them, respectively, and which it has 
credited upon its own books. But the possibility is very 
remote that the amounts of the items delivered by any 
member to the other banks will exactly balance the sum 
total of the items received from them. Indeed, so slight 



Clearing-House Methods 



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Bank of N. Y. Nat'l Bkg. Assoc'n 

Bank of the. Manhattan Company 

Merchants' National Bank 

Mechanics' National Bank 

Bank of America 

Phenix National Bank 

National City Bank 

Chemical National Bank 

Merchants' Exchange Nat. Bank 

Gallatin National Bank 

Nat. Butchers' & Drovers' Bank 

Greenwich Bank 

American Exchange Nat'l Bank 

National Bank of Commerce 

Germania Bank 

Lincoln National Bank 

Garfield National Bank 

Fifth National Bank 

Bank of the Metropolis 

West Side Bank 

Seaboard National Bank 

Liberty National Bank 

N. Y. Produce Exchange Bank 

State Bank 

Fourteenth Street Bank 

National Copper Bank 

Coal and Iron National Bank 





20040 — 1( 



National Monetary Commission 

is the chance of such an agreement that in the whole his- 
tory of the association there has not been a single instance 
of this kind, although, as we shall see, the approach on one 
occasion was within one cent of an exact exchange. 
Hence each day after the exchange the general proof will 
show a debit on the part of some of the banks and a corre- 
sponding credit on the part of others. To complete the 
clearings, therefore, it is necessary for the banks to settle 
these balances. 

Accordingly, before half past i o'clock each debtor 
bank, in compliance with the requirement of the consti- 
tution, pays into the clearing house the amount of its 
debit balance and obtains a receipt for the same, signed 
by the assistant manager. After half past i o'clock the 
creditor banks receive at the clearing house their respec- 
tive balances, and give their receipt for the same in a book 
provided for that purpose; but in no case can a creditor 
bank receive its balance until all the debtor banks have 
paid in. 

With the exception of fractional amounts, balances 
are settled with legal- tender notes, gold coin, United 
States and clearing-house gold certificates. All legal- 
tender notes and United States gold certificates are 
made up in packages of $i,ooo, $2,000, $3,000, $4,000, 
$5,000, $10,000, $20,000, $50,000, and $100,000 each, and 
all notes of a denomination smaller than $500 should be 
put up in packages of not over $5 ,000. All packages should 
be sealed and distinctly marked with the name of the 
institution, the amount, the date, and the kind of money 
contained therein. 



CI 



earing 



H 



u s e 



Methods 



V.V..19 



No. 



1 
2 
3 
4 

7- 
8 
12 
13 
14 
85 

^1 
92 
96 

97 
9<S 
!)9 



BANKS. 



Bank of N. Y, Nat'l Bkg, Assoc'n 
Bank of the Manhattan Company 
Merchants' National Bank 
Mechanics' National Bank 
Bank Oi^ America 
Phenix National B'jink 
National City Bank 
Chemical National Bank 
Merchants' Exchange Nat. Bank 
Gallatin National Bank 
Seaboard National Bank 
Liberty National BanH 
N. Y. Produce Exchange Bank 
State^ Bahk 

Fourteenth Street Bank 
National Copper Bank 
The Coal and Iron National Bank 



Dr. 



Cr. 



Balances. 



Form of Settling Clerk's Report to hisl Bank of Daily 
Balances. 

203 



National M o n e t ar y Commission 

By virtue of their convenience and safety the clearing- 
house certificates, elsewhere referred to, are now used 
extensively in the liquidation of balances. These are of 
two kinds — those issued upon the deposit of gold coin, 
gold certificates, silver certificates, and legal-tender notes 
in the clearing-house vaults, and those issued upon the 
deposit of gold coin with the assistant treasurer of the 
United States. Such certificates are issued in denomina- 
tions of $5,000 and $10,000, corresponding to the full 
amount of the gold deposited, and are made negotiable 
only among the associated banks by indorsement on the 
back. 

The holders of these certificates are the absolute owners 
of the gold represented by them, and are at liberty to 
redeem the same at any time during banking hours. It is 
entirely optional with the members to make such deposits 
or not. They act according to their pleasure; but any 
member holding such certificates, and transferring the 
same to any party not a member, is subject to a fine of 
$100 for each offense. 

The Bank of America was originally constituted a 
common coin depository, to hold in special trust and to 
issue certificates in denominations of $1,000, $5,000, and 
$10,000 upon the deposit of such gold coin as the other 
banks might place therein. 

The clearing house has been its own depository since its 
removal to the new location. Sometimes, when gold coin 
is in demand or there is a stringency in the money market, 
the coin is withdrawn from the depository by presentation 
of these certificates in considerable amounts. At other 
times the coin is freely deposited. 



204 



CI 



ear 



in^-House Methods 



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■ 



205 



National Monetary Commission 




206 



Clearing-House Methods 




Form of Gold Gektificate — Back. 



207 



National M on et ar y Commission 

A careful record is kept at the clearing house of the 
amounts of money and certificates used in the settlement of 
balances. Some idea of the relative proportion of the 
various kinds of money and certificates employed may 
be gained from the record for the year ending October 5 , 
1908. The debit balances were paid in as follows: 

United States bearer gold certificates $i, 755, 781, 000. 00 

United States order gold certificates 296, 2 10, 000. 00 

Clearing-house gold certificates 752, 420, 000. 00 

Clearing-house loan certificates 528, 710, 000. 00 

Clearing-house note depository certificates: 

Legal tenders i, 570, 000. 00 

Gold certificates 3, 605 , 000. 00 

Silver certificates 3, 020, 000. 00 

United States legal tenders and change 68, 316, 271. 41 

^3,409, 632, 271.41 

The course pursued by the manager, in the event of 
failure on the part of any member to appear at the proper 
hour to pay the balance against it, differs somewhat from 
that followed in many other associations. Article 10, 
section III, of the constitution provides that in such 
an emergency ''the amount of that balance shall be 
immediately furnished to the clearing house by the several 
members exchanging that day with the defaulting member 
pro rata, according to their respective balances against 
said defaulting member, resulting from the exchanges of 
that day, and the manager shall make requisition accord- 
ingly, so that the general settlement may be accomplished 
with as little delay as possible. The respective amounts 
furnished the clearing house on account of the defaulting 
member will constitute claims against the defaulting 
member in favor of the several banks furnishing the same.'* 



208 



Clearing-House M e t h o d s 

Thus it will be observed that they shall immediately 
furnish the clearing house the amount of that balance in 
proportion to their respective balances against the de- 
faulting bank. Most clearing houses in a similar exi- 
gency require that a member defaulting in the payment 
of a debit balance shall deliver to the manager all the 
checks received through the clearing house on the day of 
default and that the latter shall return the same to the 
members clearing them. Similarly, all the members re- 
ceiving checks from the defaulting member on that day 
are required to surrender the same to said defaulting 
member, after which the clearing of the day is readjusted 
and a new settlement made the same as if no items had 
been sent through by or on the defaulting member. There 
have been cases, however, where the insolvency of a bank 
was known before clearing hour, whereupon the clearing- 
house committee has declined to allow it to clear. 

The association is in no way responsible for the bal- 
ances, except in so far as they are actually paid into the 
hands of the manager, and then its responsibility is 
strictly limited to the faithful distribution by him among 
the creditor banks of the amounts which he has received. 
Should any loss occur while the balances are in his cus- 
tody the associated banks must bear the same in propor- 
tion to the other expenses. Any error in the exchanges 
and claims arising from the return of checks, or from 
any other cause, is adjusted directly between the banks 
concerned. 

The association is free from*" responsibility for the con- 
tents of sealed bags or packages received at the clearing 



209 



National Monetary Commission 

house, and all reclamations for errors or deficiencies in the 
contents of said sealed bags or packages must be made 
by I o'clock on the following day by the receiving bank 
directly against the bank whose mark the sealed bag or 
package bears. "All checks, drafts, notes, or other items 
in the exchanges returned as not good or missent must 
be returned the same day directly to the bank from which 
they were received, and the said bank must immediately 
refund to the bank returning the same the amount which 
it had received through the clearing house for the said 
checks, drafts, notes, or other items so returned to it in 
lawful money or clearing-house certificates. But checks, 
drafts, notes, or other items to be returned for informality 
of indorsement may, after being certified by the bank 
returning them, be returned through the exchanges the fol- 
lowing morning, not exceeding $5,000 in amount to any 
one bank." 

An amendment to this section was made on June 4, 
1884, providing that in case of the refusal or inability of 
any bank to refund promptly to the bank presenting 
items not good, the bant holding them may report the 
amount of the same to the manager, whose duty it shall 
be, with the approval of the clearing-house committee, 
to take from the settling sheet of both banks the amount 
of such items and readjust the clearing-house statement 
and declare the correct balance, in conformity with the 
change so made, provided such report is given to the 
manager before i o'clock of the same day. 

All checks, notes, drafts, and bills of exchange, when 
certified by the banks on the previous day, are considered 



Clearing-House Methods 

proper matter for clearing. Also, for the convenience of 
members, various kinds of money orders, though not au- 
thorized by the association, are accepted through the 
exchanges. 

Clearing items with restricted indorsements are pro- 
hibited by a resolution adopted June 4, 1896, as follows: 

Resolved, That on and after the ist day of June, 1896, members of this 
association shall not send through the exchanges any checks, sight drafts, 
notes, bills of exchange, or other items having thereon any qualified or 
restrictive indorsements, such as "For collection" or "For account of" or 
"Pay any bank or banker, or order" or similar indorsements, unless all 
indorsements thereon are guaranteed by the bank, member of the associa- 
tion, sending such checks, drafts, notes, bills of exchange, or other items. 

In response to many inquiries as to what indorse- 
ments are considered restrictive or qualified under the 
above resolution, the clearing-house committee replied 
that though in its opinion the forms "For deposit" and 
''For deposit to the credit of" do not fall under the class 
of indorsements within the purview of the clearing-house 
resolution, they are to a certain extent considered restrict- 
ive when followed by other indorsements, and that inas- 
much as the clearing houses of several other cities have 
decided not to accept the indorsements "For deposit" or 
"For deposit to the credit of," and decline to pay any 
item with other than a plain indorsement thereon, mem- 
bers of the association should request their correspond- 
ents and depositors to use the following form : " Pay 

-— — .- Bank, or order, " which, if used, would pre- 
vent delay and possible loss in the collection of checks and 
other items. 

The expenses of the association have not always been 
borne by the members in the same proportion. Section 



National Monetary Commission 

22 of the constitution, as originally adopted June 6, 1854, 
was as follows: 

The expenses of the clearing house, not including the expense of printing 
for the several banks (which last-mentioned expense shall be apportioned 
equally) shall be borne and paid by the several banks belonging to the asso- 
ciation, according to their respective capitals, as follows: Banks having 
capitals of less than $500,000 shall pay $100 each annually. Banks having 
capital of less than $1,000,000, and not less than $500,000, shall pay $200 
each annually. Banks having capitals of $1,000,000 and over shall pay 
$300 each annually. And in the same proportion if more funds are neces- 
sary. 

In 1864 the constitution was referred to a committee of 
five members for amendment and revision. In due time 
they reported the changes they had made, and on Janu- 
ary 24, 1865, the constitution was adopted as amended. 
It appears that prior to that time the above section was 
in force, requiring that members be assessed for expenses 
in proportion to capital, but that the change essentially 
to the present plan was then introduced. 

Prior to 1890 no charge was made upon nonmembers 
clearing, but on October 14 of that year a resolution was 
passed, fixing an annual assessment of $200 upon each 
nonmember. On December 21, 1896, an amendment was 
made to this resolution changing such assessment from 
$200 to $500. In the latter part of 1 903 a further amend- 
ment was made to this resolution, to take effect January i , 
1904, stating that on and after that date every nonmember 
sending its exchanges through a member of the clearing 
house should pay to the association the sum of $1,000 an- 
nually, at which figure it still stands. Original members 
paid no admission fee. 

Since the revision of 1865 the printing expenses have 
been divided equally, and each bank has paid an annual 



Clearing-House Methods 

assessment of $200, and, in addition, its portion of any 
other sum necessary rated on the amount of exchanges 
which it has brought to the clearing house during the pre- 
ceding year. The proportions are made out from the 
records at the clearing house, after deducting the fixed 
annual assessment upon nonmembers and members and 
rents due the association. 

There is another important feature entering into the 
element of expenses which must not be overlooked. In 
associations where the clearing house is rented property 
it is comparatively easy, in fixing upon newly elected 
members their proportionate share of the current expenses, 
to do justice to all concerned. But in New York the situa- 
tion is unique. The association owns its own clearing 
house, for the erection of which a heavy draft was made 
upon the members. Clearly, therefore, banks subse- 
quently joining should in some way render to the other 
members a just compensation for the privileges they ac- 
quire. 

Such compensation is duly provided for in the following 
plan: Preliminary to the erection of a clearing house 9,000 
shares were issued — 8,975 iii the name of the president of 
the clearing-house association and 25 in the names of the 
five directors of the Clearing House Building Company, 
who held the same in trust. Certificates to the value of 
the shares were then issued to the banks in proportion to 
their respective capital and surplus, and they in turn ad- 
vanced the money for the erection of the clearing house. 
Each bank advanced an amount of money equal to the 
face value of the certificates it held. This was done under 



213 



National Monetary Commission 

an agreement that it should receive a stipulated rate of 
interest on its certificates, such interest to be raised by 
assessment upon the members according to capital. These 
certificates are not transferrable so long as the holder is a 
member of the association, but if at any time it should 
cease to be a member the association is given the prefer- 
ence in their purchase. 

The fines collected are applied to the reduction of the 
expenses. The following table shows the amounts of fines 
for each year from 1885 to 1908, and will be of interest: 

1885 $1,015 

1886 1, 002 

1 887 . 1 , 422 

1888 1 , 398 

1889 1 1, 121 

1890 1, 046 

I89I ____LL 885 

1892 ___ 749 

1893 __ 989 

1894 538 

1895 _ 521 

1896 ____ 535 

1897 542 

1 898 407 

1899 _ 562 

1900 362 

190 1 _ _ _ 338 

1902 __. 335 

1 903 296 

1904 280 

1905 397 

1906 _ 589 

1 907 650 

1908 563 

The maximum for this period, $1,422, which is also 
the maximum for the whole history of the clearing house, 
was attained in 1887, and the minimum in 1904. It will 
be noted that the decline was nearly uniform between 

214 



Clearing-House Methods 

1887 and 1904. The falling off from year to year has 
been due in the main to improvement in the discipline 
of the clerks, and the increase in the last few years has 
undoubtedly been brought about by the largely increased 
volume of business. 

The following gives the scale of fines in force at the 
clearing house: 

Forty-five minutes from the hour of commencing — 
viz, 10 o'clock — will be allowed for a proof. For all 
errors remaining undiscovered at 11. 15 o'clock the fines 
will be doubled, and at 12 o'clock quadrupled. 

1. All errors on the credit side of the settling clerk's 
statement (i. e., in the amount brought) whether of 
footing or entry, and all errors causing disagreement 
between the credit entries, the check tickets,, and the 
exchange slips, each $3. 

2. Errors in making the debit (i. e., amount received) 
entries, each $2. 

3. Errors in tickets reported to the clearing house, 
causing disagreement between the balances and aggre- 
gate, each $2. 

4. Errors in footing the amount received, $1. 

5. Disorderly conduct of the settling or delivery clerk 
at the clearing house or disregard of the manager's in- 
structions, each offense, $2. 

6. Settling or delivery clerk failing to attend punctually 
with statements and tickets complete, at the morning 
exchanges, each $2. 

7. Debtor banks failing to appear to pay their bal- 
ances before half past i o'clock, $3. 



215 



National Monetary Commission 

8. Errors in delivery or receipt of exchanges, each $i. 

It remains in this connection to give a table of figures 
showing the clearings for each year, from the establish- 
ment of the clearing house in 1853 to the present time; 
also the balances for the same period, with other im- 
portant statistics: 



216 



CLEARINGS FOR 55 YEARS. 


Fiscal Years 
Ending 
Sept, 30. 


No. of 
Members. 


Clearings for Year. 


Average 
Dally Clearings. 


1854 


50 


$5, 750, 455, 987. 06 


$19, 104, 504. 94 


1855 


48 


5, 362, 912, 098. 38 


17, 412, 052. 27 


1856 


50 


6, 906, 213, 328. 47 


22, 278, 107. 51 


1857 


50 


8, 333, 226, 718. 06 


26. 968, 371. 26 


1858 


46 


4, 756, 664, 386. 09 


15, 393, 735. 88 


1859 


47 


6,448,005,956.01 


20, 867, 333. 19 


1860 


50 


7,231,143,056.69 


23, 401, 757. 47 


1861 


50 


5, 915, 742, 758. 05 


19, 269, 520. 38 


1862 


50 


6, 871, 443, 591. 20 


22, 237, 681. 53 


1863 


50 


14, 867, 597, 848. 60 


48, 428, 657, 49 


1864 


49 


24, 097, 196, 655, 92 


77, 984, 455, 20 


1865 


55 


26, 032, 384, 341. 89 


84, 796, 040. 20 


1866 


58 


28, 717, 146, 914. 09 


93, 541, 195. 16 


1867 


58 


28, 675, 159, 472. 20 


93, 101, 167. 11 


1868 


59 


28, 484, 288, 636. 92 


92, 182, 163. 87 


1869 


59 


37, 407, 028, 986. 55 


121, 451, 392. 81 


1870 


61 


27, 804, 539, 405. 75 


90, 274, 478. 59 


1871 


62 


29, 300, 986, 682. 21 


95, 133, 073. 64 


1872 


61 


33, 844, 369, 568. 39 


109, 884, 316, 78 


1873 


59 


35, 461, 052, 825. 70 


115, 885, 793, 58 


1874 


59 


22, 855, 927, 636, 26 


74, 692, 573. 97 


1875 


59 


25, 061, 237, 902. 09 


81, 899, 470. 26 


1876 


59 


21, 597, 274, 247. 04 


70, 349, 427. 51 


1877 


58 


23, 289, 243, 701, 09 


76, 358, 176. 06 


1878 


57 


22, 508, 438, 441, 75 


73, 785, 746. 54 


1879 


59 


25, 178, 770, 690. 50 


82, 015, 539. 70 


1880 


59 


37, 182, 128, 621. 09 


121, 510, 224. 25 


1881 


61 


48, 565, 818, 212, 31 


159, 232, 190. 86 


1882 


62 


46, 552, 846, 161, 34 


151, 637, 935. 38 


1883 


64 


40, 293, 165, 257. 65 


132, 543, 306. 76 


1884 


62 


34, 092, 037, 337. 78 


111, 048, 981. 55 


1885 


64 


25, 250, 791, 439. 90 


82, 789, 480. 38 


1886 


64 


33, 374, 682, 216. 48 


109, 067, 588. 94 


1887 


65 


34, 872, 848, 785. 90 


114, 337, 209. 13 


1888 


64 


30, 863, 686, 609. 21 


101, 192, 415. 11 


1889 


64 


34, 796, 465, 528. 87 


114, 839, 820. 23 


1890 


65 


37, 660. 686, 571. 76 


123, 074, 139. 12 


1891 


64 


34, 053, 698, 770. 04 


111,651,471.39 


1892 


65 


36, 279, 905, 235. 59 


118, 561, 781. 82 


1893 


65 


34, 421, 380, 869. 50 


113, 978, 082, 31 


1894 


66 


24, 230, 145, 367. 70 


79, 704, 425, 55 


1895 


67 


28, 264, 379, 126. 23 


92, 670, 095, 49 


1896 


66 


29, 350, 894, 883. 87 


96, 232, 442. 24 


1897 


66 


31, 337, 760, 947. 98 


103, 424, 953. 62 


1898 


65 


39, 853, 413, 947. 74 


131, 529, 418. 97 


1899 


64 


57, 368, 230, 771. 33 


189, 961, 029. 04 


1900 


64 


51, 964, 588, 564. 31 


170, 936, 146. 61 


1901 


62 


77, 020, 672, 493. 65 


254, 193, 638. 59 


1902 


60 


74, 753, 189, 435. 86 


245, 898, 649. 46 


1903 


57 


70, 833, 655, 940. 29 


233, 005, 447. 17 


1904 


54 


59, 672, 796. 804. 41 


195,648.514.11 


1905 


54 


91, 879, 318; 369. 00 


302, 234, 599. 89 


1906 


55 


103, 754, 100, 091. 25 


342. 422, 772. 57 


1907 


54 


95, 315, 421, 237. 96 


313, 537, 569. 86 


1908 


50 


73, 630, 971, 913. 18 


241, 413, 022. 66 


Totals, 




$1, 930, 248, 133, 349. 14 


$114, 765, 927. 42 



>oo40 — lo- 



217 



National Monetary Commission 

One trillion nine hundred and thirty billion two hun- 
dred and forty-eight million one hundred and thirty- 
three thousand three hundred and forty-nine dollars and 
fourteen cents! It is difficult to comprehend the mag- 
nitude of such a sum. This is sufficient to run the 
whole machinery of our Government for about three 
thousand years, and is two hundred and seventy-five times 
as great as all the gold and silver money in the world. If 
put up iii 8 -ounce duck bags in the form of silver dollars, 
it would require 16,006,778 cubic yards for storage; and 
to count it all in a single year, it would take more than 
20,000 men, counting at the rate of $175 a minute, day 
and night without intermission. 

These figures distance the transactions of all the other 
clearing houses of the United States combined, whether 
we consider the sum total of the exchanges since the inau- 
guration of our clearing system or the current transac- 
tions. 

It will be noted that the increase in clearings from 
year to year has not been uniform. The decrease was 
nearly 50 per cent from 1857-58, due in a large measure 
to the panic of 1857. Thence the increase was normal 
until the outbreak of the civil war, when business in- 
terests throughout the country received a severe blow, and 
the clearings declined till 1863, when there was a sudden 
turn, followed by an increase for the next three years. 

The requirements of the new system soon exposed a 
v/eakness in the management of eight banks, and in 
consequence of their inability to meet the demand upon 
them for daily settlements, they were forced into liqui- 



Clearing-House Methods 

dation. As a result, the second year shows a reduction 
in the total business of the clearing house, followed by 
a gradual increase, till the panic of 1857. The decline 
in the volume of exchanges was nearly 50 per cent from 
1857-58, as before stated, but by the follow^ing year the 
recovery was nearly complete, due in a large measure 
to the passage by Congress of the national currency act, 
which immediately expanded the circulation.. At this 
point came another change, and there was a slight de- 
crease in the clearings until 1869. This year was fol- 
lowed by an increase to nearly $9,000,000,000 above 
the record of any previous year. 

A gradual decline set in again, from which the busi- 
ness of the clearing house did not recover fully for the 
next twelve years. Meanwhile the clearings had gone 
down in 1876 nearly $16,000,000,000 below the total for 
1869. The resumption of specie payments by the United 
States Government on the ist of January, 1879, wrought 
a salutary change in the business and commercial interests 
of the country, and the consequent effect upon the busi- 
ness of the clearing house was wonderful. For the year 
1878 the total exchanges of $22,500,000,000, in round 
figures, increased to the prodigious sum of $48,565,000,000 
for 1 88 1, or over 100 per cent in three years, when the 
high-water mark was reached in the association's history, 
the exchanges for that year running far above the record 
for any previous year. 

The failure of two or three banks in 1884, notably 
the Marine Bank and the Wall Street Bank, produced 
a condiderable reduction in the amount of clearings, 



219 



National M o n et ar y Commission 

but the increase was rapid after 1885 until 1892, when 
the volume of exchanges was again reduced, owing to 
the general stagnation in business and trade. In 1896 
the volume of business was nearly twenty billions of 
dollars below the record of 1881. In considering this 
decline, it must not be forgotten that the establishment 
of the Stock Exchange Clearing House in 1892 has de- 
tracted very greatly from the volume of the exchanges. 
It has been estimated that to this fact is due a reduction 
of from $40,000,000 to $60,000,000 a day. 

The figures of 1881 continued as the high- water mark 
for annual clearings until 1899, when they suddenly 
leaped from $39,000,000,000 in 1898 to $57,000,000,000, 
an increase of nearly 50 per cent in a single year, and in 
1901 to $77,000,000,000, a further increase of nearly 40 
per cent. The next three years, however, showed declines, 
and in 1904 the clearings had again fallen to something 
over $59,000,000,000. Following that year the United 
States entered upon a period of prosperity far greater than 
had ever before been experienced, and in 1906 the clearings 
reached the unprecedented total of $103,754,100,000, thus 
making it the banner year in the history of the association 
and showing average daily clearings of over $342,000,000, 
By 1908, the year in which the effects of the panic of the 
previous year were felt, the clearings had dropped back to 
$73,000,000,000, thus indicating as strikingly as any figures 
could the extent of the retrenchment in business that 
occurred in the country during and following the panic. 

The variation in the ratio of balances to clearings dur- 
ing this period has not been, as a rule, abnormal. The 



BALANCES PAID IN CASH FOR 55 YEARS 


Fiscal 








Balances 


Yeaes 
Ending 


No. of 
Members. 


Balances for Year. 


Average Daily 
Balances. 


to 
Clearings. 


Sept. 30. 








Per Cent. 


1854 


50 


1297, 411, 493. 69 


$988, 078. 06 


5'' 


1855 


48 


289, 694 


137. 14 


940, 565. 38 


540 


1856 


50 


334, 714 


489. 33 


1, 079, 724. 16 


483 


1857 


50 


365, 313 


901. 69 


1, 182, 245. 64 


439 


1858 


46 


314, 238 


910. 60 


1, 016, 954. 40 


666 


1859 


47 


363, 984 


682. 56 


1, 177, 943. 96 


564 


1860 


50 


380, 693 


438. 37 


1, 232, 017. 60 


526 


1861 


50 


353, 383 


944. 41 


1, 151, 087. 77 


597 


1862 


50 


415, 530 


331. 46 


1, 344, 758. 35 


604 


1863 


50 


677, 626 


482. 61 


2, 207, 252. 39 


455 


1864 


49 


885, 719 


204. 93 


2, 866, 405. 19 


367 


1865 


55 


1, 035, 765 


107. 68 


3, 373, 827. 71 


^il 


1866 


58 


1, 066, 135 


106. 35 


3, 472, 752. 79 


3'^ 


1867 


58 


1, 144, 963 


451. 15 


3,717,413.80 


399 


1868 


59 


1, 125, 455 


236. 68 


3, 642, 249. 95 


395 


1869 


59 


1, 120, 318 


307. 87 


3, 637, 397. 10 


299 


1870 


61 


1, 036, 484 


821. 79 


3, 365, 210. 46 


372 


1871 


62 


1, 209, 721 


029. 47 


3, 927, 665. 68 


412 


1872 


61 


1,428,582 


707. 53 


4, 638, 255. 54 


422 


1873 


59 


1, 474, 508 


024. 95 


4, 818, 653. 67 


415 


1874 


59 


1, 286, 753 


176. 12 


4, 205, 075. 73 


562 


1875 


59 


1, 408, 608 


776. 68 


4, 603, 296. 65 


502 


1876 


59 


1, 295, 042 


028. 82 


4, 218, 377. 94 


599 


1877 


58 


1. 373, 996 


301. 68 


4, 504, 905. 90 


589 


1878 


57 


1, 307, 843 


857. 24 


4, 273, 999. 53 


58I 


1879 


59 


1, 400, 111 


062. 86 


4, 560, 622. 35 


556 


1880 


59 


1, 516, 538 


631. 29 


4, 956, 008. 60 


407 


1881 


61 


1, 776, 018 


161. 58 


5, 823, 010. 36 


366 


1882 


62 


1, 595, 000 


245. 27 


5, 195, 440. 54 


342 


1883 


64 


1, 568, 983 


196. 15 


5, 161, 128. 93 


389 


1884 


62 


1, 524, 930 


993. 93 


4, 967, 201. 93 


447 


1885 


64 


1, 295, 355 


251. 89 


4, 247, 069. 39 


512 


1886 


64 


1, 519, 565 


385. 22 


4, 965, 899. 95 


455 


1887 


65 


1, 569, 626 


324. 77 


5, 146, 315. 82 


449 


1888 


64 


1, 570, 198 


527. 78 


5, 148, 191. 89 


5O8 


1889 


64 


1, 757, 637 


473. 47 


5, 800, 783. 74 


505 


1890 


65 


1, 753, 040 


145. 23 


5, 728, 889. 36 


465 


1891 


64 


1, 584, 635 


499. 88 


5, 195, 526. 21 


465 


1892 


65 


1, 861, 500 


574. 56 


6, 083, 335. 18 


513 


1893 


65 


1, 696, 207 


175. 52 


5, 616, 580. 05 


492 


1894 


66 


1, 585, 241 


633. 52 


5, 214, 610. 63 


654 


1895 


67 


1, 896, 574 


349. 11 


6, 218, 276. 55 


6^1 


1896 


66 


1, 843, 289 


238. 66 


6, 043, 571. 27 


628 


1897 


66 


1, 908, 901 


897. 67 


6, 300, 006. 26 


601 


1898 


65 


2, 338, 529 


016. 43 


7, 717, 917. 54 


587 


1899 


64 


3, 085, 971 


370. 53 


10, 218, 448. 24 


537 


1900 


64 


2, 730, 441 


810. 27 


8, 981, 716. 48 


525 


1901 


62 


3, 515, 037 


741. 05 


11, 600, 784. 62 


456 


1902 


60 


3, 377, 504 


072. 11 


11, 110, 210. 76 


451 


1903 


57 


3, 315, 516 


487. 48 


10, 906, 304. 23 


468 


1904 


54 


3, 105, 858 


575. 60 


10, 183, 142. 87 


520 


1905 


54 


3, 953, 875 


974. 80 


13, 006, 170. 97 


433 


1906 


55 


3, 832, 621 


023. 87 


12, 648, 914. 27 


369 


1907 


54 


3, 813, 926 


108. 35 


12, 545, 809. 56 


400 


1908 


50 


3, 409, 632 


271. 41 


11, 179, 122. 20 


463 


Totals 


' 


189, 694, 759 


171. 06 


$5, 332, 942. 45 


464 



National Monetary Commission 

maximum was reached in 1895, when the per cent was 
6.71, and the minimum in 1869, when it reached the low 
mark of 2.99 per cent. 

The largest transactions for any one day since the clear- 
ing house was organized were on January 3, 1906, when 
they reached the prodigious sum of $686,844,890.58. 
The smallest transaction for any one day was on October 
30, 1857, amounting to $8,357,394.82. 

The largest total balance resulting from any one 
day's exchanges was on October 3, 1905, amounting to 
$42,331,709.02. The smallest total balance on record 
was on October 30, 1857, amounting to $489,720.32. 

The greatest amount of exchanges brought to the clear- 
ing house by any one bank was on January 3, 1906, 
amounting to $111,833,131.31. The greatest amount of 
exchanges taken away from the clearing house by any 
one bank was on February 28, 1905, $125,954,496.61. 

The largest balance ever paid by the clearing house to 
any one bank was on Septem.ber 30, 1905, $27,355,290.85. 
The largest balance ever paid by a single institution to 
the clearing house was paid on October 3, 1905, and 
amounted to $37,661,685. The smallest balance ever 
paid by the clearing house to any one bank was on De- 
cember 16, 1873, amounting to 10 cents. The smallest 
balance ever paid to the clearing house by any one bank 
was on September 22, 1862, amounting to i cent. 

Such is the history of the New York clearing house. 
Standing foremost among the financial institutions of the 
country, we may well forecast for it a future of still greater 
importance to the business world. 



Chapter XV. 

THE CLEARING-HOUSE ASSOCIATION OF THE 
BANKS OF PHILADELPHIA. 

EARI^Y HISTORY — RUNNERS' EXCHANGE — THE MORNING EX- 
CHANGE GOIvD DEPOSITORY — CIvEARING - HOUSE DUE- 

BII^IvS — SETTI.EMENTS WITHOUT THE USE OF MONEY — 
COMPARISON OP BANK STATEMENTS — COI.I.ATERAI. SE- 
CURITY — ASSESSMENT OP EXPENSES — ADMISSION OP NEW 
MEMBERS — PIvAN OP ADMINISTRATION — I^IST OP PRESI- 
DENTS — PAIIvURES AND RESUIvTiNG UTIGATION. 

The clearing-house association of Philadelphia is a vol- 
untary unincorporated association of certain banks of 
that city, its chief object being to effect, at a central point 
called the '' clearing house," the daily exchanges of items 
between the associated banks. It was established in 
1858, five years after that of New York, and with essen- 
tially the same rules and by-laws. Prior to this, the 
cashiers met at a central point and adjusted the balances 
in the morning exchanges, which were afterwards collected 
in cash by the runners of the creditor banks at the counters 
of the debtor banks. In this exchange were included all 
items received in the morning mail. 

The banks of Philadelphia are not so concentrated in 
location as are those of New York or Boston, and this very 
greatly enhanced the labor of the runners, who had to 
make the interchange of items. They called those banks 
most remote from the banking center "the extremities," 



223 



National Monetary Commission 

and it was indeed a most unenviable task to make the 
rounds of these daily. Accordingly, the feeling early pre- 
vailed that the exchanges would be greatly facilitated if 
only the items of the previous day were included in that 
day's exchange. In 1862, only four years after the estab- 
lishment of the clearing house, William H. Rhawn, who 
for a long time was president of the National Bank of 
the Republic, proposed the introduction of a second ex- 
change, and after a year's discussion by the clearing-house 
committee it was adopted. This w^as called the " runners' 
exchange," and it was so named because it was in a large 
measure a substitute for the work previously performed 
by the runners. 

This runners' exchange included all notes and accept- 
ances due that day and all items in the morning mail 
made payable at the banks. Through it were nearly 
always returned the items not good that were included in 
the morning exchange. 

The morning exchange took place at 8.30 o'clock and 
included only the items of the previous day. The method 
was essentially the same as that of New York, and differed 
from that of Boston only in the requirement of a receipt 
for packages as delivered. The runners' exchange was 
fixed at 11.30, so that the clerks from the debtor banks at 
the morning exchange could pay their debts before the 
runners' exchange, and the clerks from creditor banks 
could receive the amounts of their credits after the ex 
change. 

The method of the runners' exchange differed somewhat 
from that in the morning exchange. Only one clerk from 



224 



Clearing-House Methods 

each bank was employed, whereas two were required in 
the earher clearings. Each clerk upon his arrival first 
deposited the items which he held on the other banks and 
then took his position at the desk of his own bank. 
Promptly at 11.30 o'clock each clerk began to list and add 
the items deposited for his bank. The balances were 
then adjusted by duebills or checks, after which the 
clerks repaired to their several banks. 

The method of settling balances at these two exchanges 
differed from that pursued in various other clearing-house 
associations. The Farmers and Mechanics' National Bank 
received in special trust such gold coin as any of the 
members voluntarily deposited with it for safe-keeping 
for clearing-house purposes. Against such deposits cer- 
tificates in denominations of $5,000 and $10,000 were 
issued to the depositing banks, signed by the manager of 
the clearing-house association or by his assistant, or by 
some other person designated by the association for the 
purpose, and countersigned by the Farmers and Mechanics' 
National Bank. These certificates were negotiable only 
among the associated banks, and were receivable by them 
in the payment of balances at the clearing house for the 
morning exchange. The coin thus placed on deposit was 
the absolute property of such of the associated banks as 
were for the time the holders of the certificates, and was 
held by the depository subject to withdrawal on presenta- 
tion of the properly indorsed certificate at any time during 
banking hours. 

Hence it will be seen that these certificates were issued 
under about the same conditions as are the clearing-house 



225 



National Monetary Commission 




^. 









L-J-J 






^ 



■^nssi xdtlv iivp dill- asnoi{-2uixv?jj difi if^noxi^i sdSuvifpx;^ 
.iifj. ut /i{uo diqvii-v4 SI puv uosAa4 pazuotfinD dajj^ouv liq pdu^is 
-ujiunoD puD duo tiq pauSis m^m, poo's /C]uo st Ji}^. jhq sit^j^ 



S CO 

;? CD 



^JJU //t^'^/U^JO^^ 



226 



Clearing-House Methods 

certificates of New York and other cities, with the excep- 
tion that the gold coin deposited as security therefor was 
placed in the vaults of the Farmers and Mechanics' Na- 
tional Bank instead of in the clearing house, which at that 
time had no adequate facilities for the handling of the 
same. This arrangement has since been changed, and the 
gold is now deposited in the vaults of the clearing house, 
in the same manner as at New York. 

The runners' exchange has since been abolished by 
constitutional amendment, and there is now but one 
exchange a day, which takes place at lo o'clock in the 
morning. 

There is also a constitutional provision that the mana- 
ger of the clearing house shall receive the certificates 
issued by the Treasurer of the United States for clearing- 
house purposes under any act of Congress, in settlement 
of balances due from the morning exchange. These 
certificates, it is provided, must be indorsed, ''Pay to 
the order of a bank, member of the clearing-house asso- 
ciation of the banks of Philadelphia." The certificates 
are issued in denominations of $5,000 and $10,000. Inas- 
much as these certificates are issued only in the large 
denominations above mentioned, some other medium 
must be employed in the payment of balances and parts 
of balances under $5,000. This is done with clearing- 
house duebills (see form on another page) issued by 
the debtor banks to the clearing-house manager, w^ho 
deposits them in the clearing-house depository bank, 
which, in turn, sends them through the exchanges against 
the debtor banks on the following day. These clearing- 



227 



National Monetary C ommis s io 



n 







PERCENT- 
AGE OF 
RESERVE. 








6 




O 












Ot) 














T-l 


^ 2 

o 














i 




























CO 














o 














CU 














w 














o 










k. ' 




















o 


DUE TO 
OTHER 
BANKS. 




o 
o 

p 










y- 


bC 


s 










< 




)UE FRC 
OTHER 
BANKS 










C/D 


s 








4!^ 






& 








1 


>- 


1 


Ui 






O 






0) 


m 
























1^ 




^ 


£ 


is 












a 






- 






o 


J o 




^ 








• rH 






s 












'5 


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0) 








a 

a; 

03 






:3 






- 






j-< 














o 














> 














<: 








m 





Of 

m 



Clearing-House Methods 

house duebills can be used only on the day of issue, and 
are payable only in the exchanges through the clearing- 
house the day after issue. 

The manager issues to creditor banks manager's 
checks on the clearing-house depository bank for the 
amount of their credit, under $5,000, being the amount 
of the duebills deposited with that bank. Banks are 
required to give duebills to the other banks upon demand, 
in payment of items at their counters, where the amount 
exceeds $100. They are also required to furnish to each 
other and to the manager of the clearing house the names 
and signatures of all persons authorized to sign or coun- 
tersign duebills. 

By this means the balances are settled from day to 
day without the use of a single penny of money. The 
risk attending the transfer of large sums of money 
through the streets of the city is obviated, and the greatest 
possible ease is secured in the receipt and disbursement 
of balances. 

The provision of the constitution regarding state- 
ments is as follows: '* Each bank shall furnish on Mondays, 
for publication, a statement of its average condition for 
the previous week, after deducting the daily exchanges 
from the gross figures of the preceding day. To each 
statement shall be appended the state of the account of 
the bank with New York on the day of report. These 
statements shall be certified to by the president, cashier, 
or assistant cashier." 

Bach bank is also required to furnish a daily state- j/ 
ment to the manager, but not for publication, certified 



229 



National Monetary Commission 



26 DAILY STATEMENT 

of TH.E CeJNTRAI^ iSTATIOM. 

at the close of business *,..^„^^.,.„.^r«wHr»n^wrf»».. 
This Statement, is to be sent with the Exchanges, to 
at or before 10 o'clock, A. M., on the following biisi 


A.L Ban k, 

^^^^^^ — aoo 

the Clearing-house, 
ness day. 


. Loans and Discounts, including all Interest 
Bearing Securities of the United States . 














1 


Individual Deposits ^^..«»^,..«^^„.^,. 

Banks' and Bankers' Deposits.«„^.,..^ , 








Total Deposits,^^ ... ^, „.. ^ .„. 

Less Exchanges for Clearing-house dnd 

due from Banks and Bankers (exclusive 

of R eserve A gents) w „ , „ , ^ ..,»« m^^.^^^ 

Net Deposits. o«.^— ^.^ ^-»„.-..—^ 














Specie o«=:r^^^,^.,«^^^„,. ,, ^,, 

U. S. Legal Tender \otes«^. «^,. ^^. 

U. S. Treasury Gold Certificates ^«, 

Clearing-house Gold Certificates «^^.„^ 

Cash Reserve . .r,^. „,,».„ ^^^ 
Due by Reserve Agents«^...»,«„^„.,..„.^^ 














Total Reserve. ^„..^„p « . .r ^ , . ^^^ , 








Circulation «=^ „^i.«,»^.^, . ., .^ . . ^^,%^«. ,7 
National Bank Nbtes.^^. ,^«»^ w^.»^.. .^. 




1 




/ certify that- the above statement is correct as shoirn b;/ the hooks of 
the Bank. 

Ceueral B<»>kAeej.>rr 



Form of Daily Statement Employed by the Banks op 

Philadelphia. 

230 



No. 1 


Phil 


2 


Nor 


3 


Fan 


6 


Nat 


7 


Sou' 


8 


Ker 


9 


Pen 


10 


Wes 


11 


Mar 


13 


Gin 


14 


Tra 


18 


Gor 


19 


Uhi 


20 


Firs 


21 


Thi 


23 


SixJ 


25 


Eid 


56 


Ceq 


28 


Nat 


29 


Cen 


30 


Me] 


33 


Nir 


34 


Ter 


36 


Noi 


37 


Sov 


39 


Foi 


40 


Ma 


42 


QU! 


43 


Noi 


44 


Fra 


45 


Tej 



July 




LAND TI 



2 004 



AVERAGE CONDITION OF THE BANKS IN PHILADELPHIA. 

For the Week preceding Monday, July 26tli 1909, 

As furnished by JOHN C. BOYD. Manager Philadelphia Clearing-house. 



Philadelphia National. . . .. 

North America 

Farm's & Mech's National 
Nat. Bk. of N. Liberties... 
South wark National. . . . . . 

Kensington National- 

Penn National 

Western National _ . 

Manufacturers Nat'l 

Girard National. 

Tradesmens National, . . . . 
Corn Exchange National." 

Union National 

First National 

Third National ,.. 

Sixth National 

Eighth National - . . 

Central National ,. . 

National Security 

Centennial National. 

Merchants' National 

Ninth National 

Tenth National. 

Northwestern National 

Southwestern National.. . . 

Fourth Street National 

Market Street National . . . 

Quaker City National; 

Northern National 

Franklin National 

Textile National..,- 

Total: 



SI, 500,000 

1,000,000 

2,000,000 

500,000 

250,000 

250,000 

500,000 

600,000 

500,000 

2,000,000 

500,000 

1,000,000 

500,000 

1.000,000 

600,000 

150,000 

275,000 

750,000 

250;000 

300,000 

1,000,000 

300,000 

200,000 

200,000 

200,000 

3,000,000 

1,000,000 

500,000 

200,000 

1,000,000 

200,000 



$22,225,000 



837,696,000 

13,082,00.0 

13,338,000 
3,834,000 
1,787,000 
1,699,000 
5,266,000 
3,562,000 
2,125,000 

31.472,000 
4,994,000 

14,365,000 
5,589,000 
9,185,000 
4,355,000 
1,356,000 
3,057,000 

13,491,000 
3,241,000 
2,969,000 

10,507,000 

3,350,000 

057,000 

852,000 

884,000 

38,231,000 
7,95O,<300 
2,652,000 
1,S43,000 

25,142,000 
1,058,000 



$271,989,000 




881,290,000 



July 19th..- ,. 816,068,176 55 

" 20th. „.,. 23,924,108 45 

21st ..,.,.,. 22,343,605 12 



Increa.se. Increase. Decrease. Decrease. Decrease. 

899.000 8257.000 81,194.000 8296,000 8501,000 

CLEARINGS AND BALANCES. 

81,020,819 21 ,rulv22d 19.755,588 38 

2,005,900 00 •■ 23d 20,582,065 20 

1,912,,332 99 " 24th 17,827.577 00 

8120,501,120 70 



Increase. 
8251,000 



1,204,080 89 
1,492,122 36 
2,098,203 58 

8P,793,519 03 



WEEKLY STATEMENT FOR TRUST COMPANIES. 
Average, Condition for the Week preceding Monday, July 26th, 1909. 



TRUST COMPANY 



LAND TITLE & TRUST CO. 



82,000,000 



Surplus 
Fund and. 
Undivided 

Profits 



Loans and 
Invest- 
ments 



-859,000 



Legal 

Tender 

Notes and 

B^nk-N'otes 



On bepoFit 

with Clear- 

ing-liouse 

Agent 



On Deposit 
with other 
Approved 
Deposito- 
ries 



$1,241,000 



Deposits 



Form of St.vtement of the AvERAciE Condition of riiiLAUELi'iiiA T.anks. 
! 0040-10. (To face page 230.) 



Clearing-House Methods 

by the general bookkeeper. Such statement is to be 
made before the commencement of business and sent 
to the clearing house with the morning exchanges. 
Thus the Philadelphia association is more rigid even 
than New York in this particular, and, indeed, more 
exacting than any other clearing-house association in 
the country. In many cases, especially in the larger 
cities of the country, a weekly statement is required, 
but in no city except Philadelphia is a statement re- 
quired oftener than once a week. 

Philadelphia reports eight items, while New York 
reports but seven. Both give ''capital stock," "cir- 
culation," "loans and discounts," and ''deposits," but 
Philadelphia differs in that they report "lawful money 
reserve" in one item, and include "due from banks," 
"due to banks," and "percentage of reserve," which are 
not given in the New York reports. 

In addition to the protection afforded each member 
by these statements, each bank, upon becoming a mem- 
ber, is required to deposit collateral with the clearing- 
house committee, as security for its daily settlements, 
in the following proportion to capital : Banks with capitals 
of $800,000 and over, 10 per cent. Banks with capitals 
of $500,000 and under $800,000, 14 per cent; but not to 
be required to deposit over $80,000. Banks with capitals 
of $250,000 and under $500,000, 20 per cent; but not to 
be required to deposit over $70,000. Banks with capitals 
of under $250,000 shall deposit not less than $50,000. 

The rules of the association further provide that if, 
after any bank shall have become a member of the asso- 



231 



National Monetary Commission 

elation, the elearing-house eommittee shall deem the 
collaterals deposited by such bank to be insufficient 
security for its daily transactions, the committee may 
from time to time require such bank to deposit additional 
collateral security therefor. It is understood by all 
banks making such deposits that they alone are respon- 
sible for any loss on their collaterals deposited resulting 
from the failure to make demand and protest, or from 
any other neglect or omission other than the refusal to 
take such reasonable steps as may have been previously 
requested in writing. 

In case of default by any member, the clearing-house 
committee is instructed to apply their deposit of collateral 
**to the payment of any balances due by such bank at 
the clearing house or to the reimbursement pro rata of 
the several banks furnishing any such balance, and the 
surplus, if any, shall be held by the committee as collateral 
security for any indebtedness of such defaulting bank to 
the clearing-house committee, or to the association or 
any of its members, and also as security for all costs, 
expenses, and counsel fees, paid by the clearing-house 
committee, for the collection of the security representing 
the deposit, or which the committee may be compelled 
to pay by reason of holding the same." The committee 
may be required to determine the time when exchanges 
or deliveries of collateral security shall be made. 

The constitution further provides that — 

Bills receivable deposited as such security shall in no case be received 
at more than 75 per cent of their face value, unless accompanied by col- 
lateral security of greater value, when, in the discretion of the committee, 
such bills may be received to an amount not exceeding their face value. 
It shall be the privilege of each bank to examine twice a year, or oftener, 

232 



Clearing-House Methods 

at its option, the securities in the custody of the clearing-house committee, 
deposited by it, as collateral security, to compare the same with the receipt 
given by the committee, and if found correct, to execute to the committee 
a certificate setting forth the different kinds and amounts thereof, and 
that the same are in the possession and custody of the committee at the 
date of such certificate. Such examination may be made by an officer of 
such bank or nonmember, or by a committee of directors duly appointed 
for the purpose. 

As in New York and Boston, the expense of printing 
is apportioned equally; but while other associations re- 
quire that each bank shall be assessed a stated sum and 
pay the remainder thereafter in proportion to its ex- 
changes for a given period, the Philadelphia Association 
requires that all such expenses shall be borne by the 
several members, according to capital, as follows: Banks 
having a capital of less than $500,000 shall pay $100 
each annually. Banks having a capital of $500,000 and 
less than $1,000,000 shall pay $200 each annually. Banks 
having a capital of $1,000,000 and upward shall pay 
$300 annually, and in the same proportion if more funds 
become necessary. The expenses are much lower than 
at New York, Chicago, or Boston. 

The fines, amounting to from $300 to $400 annually, 
have always been donated to the Bank Clerks' Beneficial 
Association. In the last few years the disorder fines 
have amounted to but a very small sum. None of the 
fines are high comparatively. For no offense is it greater 
than $1 except for failure to attend exchanges promptly 
and to be punctual in the payment of debtor balances, 
in which case it is $2 for each offense. 

Banks may be admitted from time to time to member- 
ship in the association, but the requirements are more 
rigid than in any other city. Applications must be made 
20040 — 10 16 233 



National Monetary Commission 

to the clearing-house committee and upon a favorable 
report by them to the association the applicant may be 
admitted by an affirmative vote of three-fourths of all 
the members and by paying an admission fee of $10,000 
and certifying assent to the articles of association. In 
no other city is the admission fee so high, and in only a 
few is more than a majority vote of the members neces- 
sary for admission. 

The power of suspension is lodged in the clearing- 
house committee, but no suspension can take place un- 
less a majority of the committee are present and vote 
unanimously in favor thereof. In the event of such 
action, it is the duty of the committee to call a meeting 
of the association immediately to take the matter into 
consideration. 

The administration of the clearing house is vested in 
a president, secretary, manager, assistant manager, com- 
mittee of arbitration, and clearing-house committee. 
The latter committee, consisting of six bank officers, is 
elected annually, and in it is vested almost absolute 
power. This committee appoints the manager and 
assistant manager, establishes rules to be observed at 
the clearing house, subject to the approvaL of the asso- 
ciation, and generally supervises clearing-house affairs. 
It has charge of the funds belonging to the association, 
draws on each bank for its quota of expenses, and sub- 
mits to the association detailed accounts of expenditures. 
It takes into its custody the collateral securities required 
to be deposited by the banks. This committee has 
power to remove the manager or any of the assistants 



234 



Clearing-House Methods 

whenever, in its opinion, the interests of the association 
require it. The committee can examine the books and 
assets of any member of the association whenever it 
shall deem it necessary. 

The committee of arbitration is also elected annually 
and is composed of six bank officers. Upon it devolves 
the duty of hearing and determining disputes between 
members of the association when submitted to it by either 
party. The duties of this committee, however, are not 
very arduous, as the records show that it is rarely called 
upon to meet. 

The president is elected annually by ballot and pre- 
sides at all meetings of the association. He is ex officio 
a member of each of the standing committees and in his 
absence a president pro tempore is appointed. 

At the beginning of the organization it happened that 
the man who had been longest president of a bank was 
made president of the association. He was repeatedly 
reelected, his final term expiring after ten years of service. 
The precedent of electing and reelecting to the presi- 
dency of the association the one who has been longest 
president of a bank has since been adhered to, so that in 
the history of the association there have been only five 
presidents, as follows: Joseph B. Mitchell, Joseph Patter- 
son, James V. Watson, J. H. Michener, and the present 
incumbent, F. B. Reeves, who assumed office on January 

7, 1907. 

The secretary is elected at the annual meeting by ballot. 
It is his duty to keep correct minutes of the proceedings 
of the association in a book provided for the purpose. 



235 



National Monetary Commission 

The manager has immediate charge of all business at 
the clearing house; under clerks and messengers from the 
banks are under his direction. His decisions concerning 
details at the clearing house are binding, until modified 
by the clearing-house committee. It is his duty to im- 
pose and collect fines fixed by the association for the vio- 
lation of rules at the exchanges. With the assistance of 
the clerks, he performs the duties connected with the op- 
eration of clearing, the adjustment and payment of bal- 
ances, the keeping of records, the preparation of weekly 
statements, and, in a word, all the details of clearing. 
His salary is fixed by the association and he is required to 
give bond with sureties in the sum of $50,000, subject to 
the approval of the clearing-house committee. In this 
connection it may be remarked that at Chicago a bond 
is required in the same amount, but at Boston and New 
York it is fixed at $10,000. 

Permanent clerks are also required to give bond in 
such sums as the clearing-house committee shall deter- 
mine, with approved sureties. Such bonds must be exam- 
ined by the clearing-house committee at least once a year. 

In the history of the Philadelphia clearing house four 
of the member banks have failed, viz, the Fourth National 
in 1874, the Spring Garden and the Keystone National in 
1891, and the Chestnut Street National in 1897. "^he fail- 
ure of the Keystone National Bank involved the receiver 
thereof and the seven members of the clearing-house com- 
mittee in litigation. The facts connected with the case 
and the result of the trial are very interesting and impor- 
tant to all clearing-house associations. The circumstances 
were briefly as follows: 

236 



Clearing-House Methods 

On March 20, 1891, the Keystone National Bank 
made its regular exchanges at the clearing house, bringing 
items to the amount of $70,005.46, and receiving $117,- 
035.21. The debtor balance of this bank, therefore, was 
$47,029.75. The bank failed to pay its balance at 12 
o'clock, in accordance with the rules, and it was not sub- 
sequently paid. In compliance with a previous agree- 
ment between the associated banks and the Keystone 
National Bank, the manager was allowed to hold the 
exchanges received by the latter until the payment of the 
balance. Accordingly he retained the packages in his 
possession, and, after 12 o'clock on the day of failure, 
notified the banks which had sent the exchanges that they 
must make them good by the payment into his hands of 
that amount of money. With this request they immedi- 
ately complied and took away the packages. 

In addition to the debit balance of $47,029.75 on the 
morning of failure, the Keystone National Bank owed 
$41,197.36, for which it had issued clearing-house due- 
bills in payment of its balance on the preceding day, and 
which duebills, according to the common rule, were pay- 
able in the exchanges on the following day, which in 
this case was the day of failure. Further, it owed $335,000 
on clearing-house loan certificates, issued to it by the 
association on the deposit of collateral security in obedi- 
ence to the terms of a special agreement entered into 
between said bank and the clearing-house association. 
Acting under the instructions of the clearing-house com- 
mittee, the manager appropriated the sum of $117,035.21, 
furnished him by the banks, to the payment of the obliga- 



237 



National Monetary Commission 

tions of the Keystone National to the association, as fol- 
lows: In payment of the debit balance of the Keystone 
National Bank in that morning's exchanges, $47,029.75; 
to make good the duebills given by the bank for its debtor 
balance on the preceding day, including duebills given to 
the several banks, $41 , 197.36 ; and the remainder, amount- 
ing to $28,808.10, to the cancellation of a part of the 
$335,000 in clearing-house loan certifica^,es issued to that 
bank. 

Upon a bill brought by the receiver of the defaulting 
bank against the seven members of the clearing-house 
committee, the circuit court rendered a decree for $70,- 
005.46, with interest from March 20, 1891, against the 
defendants, on the ground that after the known insolvency 
of the named bank they applied its funds in their hands or 
under their control to the payment of its debts to the 
clearing-house association and to members thereof, with a 
view of giving them unlawful preference over other cred- 
itors. 

The circuit court of appeals, to whom the case was 
appealed by the clearing-house committee, reversed this 
decree, on the ground that a bona fide exchange of items 
had taken place between the Keystone National Bank and 
its clearing-house association before the bank examiner 
had acted, and w^hen the clearing-house association had 
no reason to suspect the impending failure. The trans- 
action was in the regular course of business and with a 
view to continuing operation. The exchange was an 
accomplished fact, and the only thing remaining to be 
done was the payment by the Keystone National Bank 



238 



Clearing-House Methods 

of its debtor balance in the morning exchange. It failed 
to do this, and hence the action of the clearing-house 
manager in appropriating the money received from the 
various banks holding exchanges on the Keystone National 
Bank to the payment of the latter 's obligations to the 
association was a justifiable procedure. The receiver of 
the Keystone National Bank finally appealed the case to 
the Supreme Court of the United States, and in March, 
1897, a decision was rendered in favor of the clearing- 
house committee. 



239 



Chapter XVI. 
THE BOSTON CLEARING HOUSE. 

I^ORMATION AND EARLY HISTORY — PERIOD OF THE CIVIIv 
WAR — SETTI.EMENT OF BAI^ANCES — BORROWING AND 
LOANING BALANCES — CLEARING FOR OUTSIDE BANKS. 

Only three years after the estabHshment of the New 
York clearing house a similar association was formed in 
Boston — namely, in 1856 — for the purpose, as specified in 
the constitution, of effecting a more perfect and satisfac- 
tory settlement of the daily exchanges of checks and other 
items, and of the balances resulting therefrom. The con- 
stitution was modeled very closely on that of New York, 
and, although important changes have since been wrought 
in both, Boston still remains more nearly on the New York 
model than does any other important association in the 
United States. This is so, for the most part, because the 
New York clearing house was the only one at that time in 
the United States; and hence to it alone could Boston look 
for a model. 

The history of the association has been both eventful 
and interesting. Prior to its establishment there was 
much opposition to it, on the ground that it was an " inno- 
vation upon the established order of things and of doubtful 
expediency," but when the pressure in favor of its estab- 
lishment became so great that opposition on the part of 
a few was no longer of any avail and it became an estab- 
lished fact, its great practical utility was quickly demon- 
strated and the opposing banks soon came into it. 

240 



Clearing-House Methods 

In less than two years after its formation the panic of 
1857 burst upon the country, and in that crisis its useful- 
ness was severely tested. In New York specie payments 
were suspended, whereupon the Boston banks immedi- 
ately took action, and a committee was appointed to 
report to the association what course should be followed, 
in view of the action at New York. Upon the recom- 
mendation of that committee that Boston should follow 
the lead of New York, specie payments were suspended. 
It thus became necessary to provide some substitute for 
specie. Clearing-house loan certificates, based upon col- 
lateral as security, did not come into use until i860, and 
hence a different course was taken from that generally 
pursued by clearing houses in similar emergencies since 
that time. 

The association voted to permit its members to use 
their own circulating notes in the settlement of balances 
to a limited amount, based upon the capital of each bank, 
in no case exceeding 5 per cent, except in the case of the 
Suffolk Bank, which v/as allowed 10 per cent, it at the time 
being the redeeming agent for the note circulation of 
nearly all the New England banks. These bills thus 
received at the clearing house were to be returned to the 
next day's settlement, and were to be at the joint risk of 
the banks in proportion to the amounts of their respective 
capitals; and the clearing-house committee were author- 
ized to demand at their discretion satisfactory collateral 
security for such bills. The banks using their notes at 
the clearing house were required to pay one day's interest 
at a time. 



241 



National Monetary C o mm is s to 



n 



The association, on the day following that upon which 
this plan was adopted, having been addressed by a com- 
mittee representing the merchants of the city, who ex- 
pressed their desire for an expansion of the bank loans, 
voted that the amount of circulating notes that may be 
used in settlements at the clearing house be doubled. At 
a subsequent meeting, in order to encourage the use of 
specie, it was voted that the manager keep an account of 
the specie paid in by each bank, and in subsequent settle- 
ments repay to such bank, when a creditor, specie, this 
reimbursement to be in the order of payment by the banks. 

A few weeks later the association voted that the amount 
for which the bills of the associated banks may be used in 
the liquidation of balances at the clearing house, be re- 
duced 50 per cent, and on December 14, 1857, just two 
months after suspension, a unanimous vote was cast in 
favor of the resumption of specie payments. It is prob- 
able that for a short time thereafter the use of bank notes 
was continued, but within a week it was voted to discon- 
tinue altogether their further use at the clearing house. 

From this time on the exchanges took place with little 
interruption till the outbreak of the civil war, when anx- 
iety and distrust again seized upon the country. In the 
latter part of i860 it was voted to permit the banks to 
settle their balances at the clearing house with their own 
circulating notes to the extent of 10 per cent of their capi- 
tal, it being voted at the same time that it was the duty of 
the banks to maintain specie payments in that crisis. 
There was much disturbance in financial circles from that 
time forward, and on August 27, 1861, the association 



242 



Clearing-House Methods 

voted that any bank that had agreed to the arrangement 
entered into by the banks in New York, Boston, and Phila- 
delphia, with regard to the national loan, could deposit 
with the clearing-house committee treasury notes of that 
loan and receive certificates to an amount not exceeding 
90 per cent of the par value of such treasury notes. These 
certificates were to be known as loan certificates and were 
to be receivable at the clearing house in the settlement of 
balances. These were the first certificates of the kind 
issued by the Boston association. 

Not long thereafter the New York clearing house again 
suspended specie payments and was followed almost 
immediately by Boston, in a resolution declaring that 
they had suspended specie payments until such time as 
they could with safety resume their legitimate basis for 
circulation and deposit. That time did not, in the course 
of events, arrive until seventeen years had passed by. 

Affairs drifted on from bad to worse until the panic 
of 1873, when the association again authorized the issue 
of clearing-house loan certificates, secured by collateral, 
on substantially the same basis as the issue by the banks 
in New York. No further action of this kind was taken 
by the association until seventeen years later, when, in 
1890, certificates were again issued, and these were fol- 
lowed by similar issues in 1893 and 1895. Such are the 
important features of the association's history. 

The Boston clearing house is located at a central point 
in State street. Here, at 10 o'clock in the morning of 
each business day, the representatives of eighteen banks, 
members of the association, meet and exchange the items 



243 



National M on et ar y Commission 

which they hold upon each other. The process of ex- 
changing items is precisely the same as at New York, 
except that in Boston they have abandoned the practice 
of receipting for exchanges as delivered on the ground 
that it is a useless expenditure of time. 

In the settlement of balances Boston has a system 
peculiarly its own. The constitution declares that ''the 
debtor banks shall pay to the manager at the clearing 
house the balances due from them respectively, either 
in coin or in such other currency as the laws of the asso- 
ciation shall require, or in such certificates as shall be 
authorized by the clearing-house association, excepting 
sums less than $i,ooo, which may be paid in national- 
bank bills." Although coin is specified as acceptable in 
the payment of balances, it is tacitly agreed that no silver 
will be used, owing to its great bulk and consequent 
inconvenience. 

All gold paid into the clearing house in payment of 
balances must be put up in strong canvas bags, each 
containing $5,000, all coins contained in any one bag 
to be full weight and of one denomination, the bags 
to be securely fastened with a seal (bearing the name 
of the member putting up such package) in such 
manner that in the opinion of the manager of the 
clearing house the fastenings can not be sufficiently 
released to allow of the removal of any of the contents 
without mutilating the seal. Every such package must 
have a suitable label or tag attached bearing the name of 
the sealing member, the amount of the contents, denom- 
ination, date of sealing, and signature of the person or 
persons sealing the same. 

244 



Clearing-House Methods 

All packages containing legal-tender notes or United 
States gold certificates, for use in payment of balances 
at the clearing house, must be made up in even amounts 
of $i,ooo, $2,000, $3,000, $4,000, $5,000, $10,000, $20,000, 
$50,000, or $100,000 each. Notes of smaller denomina- 
tions than $500 must be put up in packages containing 
notes of but one denomination and not more than one 
hundred notes each. 

All packages must be distinctly marked with the 
name of the bank, the date, and the amount of money. 

Reclamations for errors and deficiencies in coin re- 
ceived at the clearing house contained in bags or other 
packages, sealed and marked in conformity with rules 
which may be established by the committee, are to be 
made by the receiving banks directly against the banks 
whose marks they bear, the clearing house not being 
responsible for the contents of such sealed bags or pack- 
ages, and such reclamations shall be made not later than 
2 o'clock p. m. on the day next following receipt. 

Bach debtor bank, at the hour for making its settle- 
ment at the clearing house, sends a ticket with an itemized 
statement of its balance, as shown in the illustrations. 

On the back of the receipt which the manager gives the 
bank for its balance, copy of which is also shown among 
the illustrations, is a similar blank, and upon this, after 
counting each balance as it is paid in, he itemizes it, and 
if he finds that his statement agrees with the one sent in 
by the bank he makes out a receipt for the whole, being 
satisfied that his work is correct. He retains any orders 
received from creditor banks as his receipts for their bal- 
ances. 

245 



National Monetary Commission 



Boston, ^^. — 

BALANCE PAID 0L£A£IN@-HOTrS£ THIS BAT BY 

FIRST NATIONAL BANK. 



Be sure and Itemize your balance. Have bills 
properly strapped and distinctly marked. 



Change - 








Bills - - - ^ - 








J^gal Tenders - 








C.H. Gold Ctfs. - 








Coin 








Gold Certificates- 








Orders - - - .. 








Amount - - - 









F^iiM OF TiCKiliT UbED BY BoSTON EaNKS IN CONNECTION 

WITH Taymknt of Debit Balances. 



246 



Clearing-House Methods 

Many years ago the custom sprang up at Boston of bor- 
rowing and loaning balances at the morning exchanges, 
and the settlement of the same by orders on the clearing 
house, and at one time this practice was an important 
.feature of the clearing system. During the past few years, 
however, the practice has been largely discontinued, and 
only occasionally does one bank now borrow from another 
on account of its debit balances. Groups of officers may 
still be found at the clearing house each morning, but gen- 
erally for the purpose of buying and selling New York ex- 
change, and not for borrowing and loaning balances, as 
heretofore, although occasionally a debtor bank or banks 
still borrow from a creditor bank or banks for the purpose 
of paying clearing-house balances. 

The borrowing and loaning of balances had its incep- 
tion in a small way some thirty years since, as a matter of 
convenience to debtor banks, and is quite unlike anything 
else in the clearing houses of the United States. Before 
its adoption debtor banks which found their balances at 
the morning exchanges too great for convenient settle- 
ment with cash, but which could easily call in the neces- 
sary amount later in the day, were accustomed to send 
their representatives through the streets to borrow from 
neighboring banks. Owing to the inconvenience and 
risk of this practice, the presidents and cashiers of the 
banks began to meet at the clearing house, and then, after 
the exchanges had taken place, to borrow and loan their 
balances. The custom found favor with the banks, and 
at one time had grown to such considerable proportions 
that some 60 per cent of the total balances were settled in 



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248 



Clearing' House Methods 

that way. On the floor of the clearing house at each morn- 
ing exchange could be seen a busy group of bank officials, 
some borrowing balances, others negotiating loans. 

A may find himself a heavy debtor and may desire to 
borrow of B, whose balance is a heavy credit. If B wishes 
to loan to A, he gives him an order on the clearing house, 
and the latter uses it the same day in the settlement of his 
balance. All orders, therefore, on the clearing house are 
accepted by the manager in the settlement of balances to 
the full extent of their face value. But A may not desire 
but a small part of B's balance, in which event B may 
find a dozen other banks anxious to borrow, to each of 
whom he may loan a portion. Again, some, not finding 
it advantageous either to borrow or loan, settle their bal- 
ances by the usual cash payments at the clearing house. 
In practice, some banks habitually loan, but never bor- 
row. Others habitually borrow, but seldom or never loan. 

Although no direct losses have ever occurred from this 
practice, it is strenuously opposed by conservative bank- 
ers on the ground that it is dangerous for banks to borrow 
so heavily when they may be called upon for the full 
amoimt of the loan without a moment's warning. For 
example, A loans B $75,000 to-day, and the latter uses it 
in the settlement of his balance. B does not find it con- 
venient to return the loan to-morrow, and A, finding an 
opportimity a day or two later for a better investment, 
sends through the clearing house a check on B for the full 
amount. The latter is left with no alternative but to pay 
the balance or fail. Any objection, therefore, to such a 
custom seems on its face plausible, but in practice, as 

20040 — 10 17 249 



National Monetary Commission 















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250 



Clearing-House Methods 

is claimed, a severe check is placed upon the borrower 
by the discretion of the loaner. It is practically impos- 
sible for any member to be a habitual borrower without , 
its being known to the other members. Thus creditor 
banks are enabled to exercise proper care in making loans, 
and thereby to avoid loss. 

The rate of interest on such loans corresponds very 
closely with the rate on call loans. The newspapers reg- ' 
ularly report the clearing-house rate, and this doubtless 
has some influence on the rate in the market. A prom- 
inent banker has said that the effect of this custom is to 
make the rate higher than it otherwise would be, as the 
banks needing the money must have it, no matter what the 
rate may be, but in a weak market it has the effect of 
making the rate lower, since banks having a surplus will 
accept a low rate rather than hold cash over. 

One important disadvantage of this plan of borrowing 
and loaning balances, and one which has come into promi- 
nent notice in certain instances of late, should be mentioned 
in this connection. A bank that is a borrower of clearing- 
house balances is thereby deprived of the assistance in 
time of distress afforded by clearing-house loan certifi- 
cates. As before mentioned, the members of the clearing 
house who are lenders of balances are very sure to know 
of a given bank that is an habitual borrower, and accord- 
ingly they are on their guard, watching for the oppor- \, 
tunity to call for the amotuits they have loaned whenever 
it would seem that the debtor bank could pay the same. 
As soon, therefore, as the debtor bank arranges for clear- 
ing-house loan certificates, its fellow-members, who are its 



251 



National Monetary Commission 

creditors, hold out their hands for them, thereby exchang- 
ing unsecured claims against the bank for the very best 
security that it can put up. The debtor bank then is 
deprived of the advantage of clearing-house loan certifi- 
cates up to the amount of its indebtedness to its fellow- 
members. 

To put it otherwise, the act of borrowing balances in 
the clearing house anticipates the help that otherwise the 
clearing house could and would be to the bank when it 
really needed assistance. It is, of course, impossible to 
eat the cake and have it too. During the time this custom 
has prevailed in Boston, many banks, first and last, have 
found themselves embarrassed thereby, and have been 
compelled to struggle along in seasons of stringency with- 
out the help that clearing-house loan certificates would 
have afforded them, simply because to have asked for 
them would have advertised their condition in a manner 
to bring one class of their creditors down upon them in a 
way to nullify all the assistance they had obtained, and 
perhaps also draw the attention of the business public to 
their embarrassed condition, after they had exchanged 
their good bills receivable for clearing-house loan certifi- 
cates. 

The plan of borrowing and lending balances, although 
very generally acquiesced in by the banks of Boston, 
would seem to be fraught with danger. It would be less 
alarming, in the estimation of many conservative bankers, 
if the creditor banks were obliged by clearing-house rules 
to report from day to day to what institutions they have 
loaned their balances, either in whole or in part. Trans- 



252 



TON, 

1909. 



Legal 
Tenders. 



Specie, 



BANKS. 



201,000 

28,000 
393,000 

63,000 
117,O0C 
185,000 
639,000 
,076,000 
259,000 

38,000 
329,000 

29,000 
635,000 
132,000 
455,000 
107,000 

46,000 



1,055,000 

185,000 

901,000 

35,000 

376,000 

950,000 

2,201,000 

7,610,000 

1,260,000 

483,000 

1,085,000 

352,000 

6,000,000 

101,000 

477,000 

348,000 

180,000 



National Union 2 

Old Boston National 3 

State National 4 

New England National 5 

Atlantic National 12 

Merchants National 13 

Second National 17 

National Shawmut 20 

Nat'l B'k of Commerce 22 

Webster and Atlas Nat'l 25 

Eliot National 26 

Boylston National 32 

First National 39 

National Security 46 

Fourth National 51 

Winthrop National 53 

Commercial National 56 



4,735,000 
Dec. 
129,000 



23,599,000 
Dec. 
53,000 



oNs Foreign Department. 
11,072,516 
10,810,682 
10,287,694 



STATEVIENT OF THE 



ASSOCIATED BANKS OK BOSTON 

As returned to tlie Cleiiriiig-liouse. for tlie w^ek ending Saturday, August 14^, 1909. 



2 National Union 1,000.000 

3 Old Boston National 900,000 

4 State National 2,000,000 

5 New England National 200,000 

12 Atlantic National 750,000 

13 Merchants National 3,000,000 

17 Second National 2,000,000 

20 National Shawmut 3,500,000 

22 Nat'l B'k of Commerce 1,500,000 

25 Webster and Atlas Nat'l 1 ,000,000 

26 Eliot National 1 ,000,000 

32 Boylston National 700,000 

39 First National 2,000,000 

46 National Security 250,000 

51 Fourth National 1, 000.000 

53 Winthrop National 300,000 

56 Commercial National 250,000 

Aggregates. 21,350,000 



"1,637,000 
2,674,000 
10,163,000 
668,000 
3,633,000 
16,449,000 
20,882.000 
63,874,000 
11,135,000 
5,380,000 
10,753,000 
3,052,000 
44,030,000 
2,382,000 
6,890,000 
3,293,000 
1,951,000 



147,000 
49,000 
223,000 
99,000 
207,000 
,426,000 
697,000 
-454,000 
50,000 
181,030 
990,000' 
140,000 
800,000 
248,000 
389,000 
298,000 
148,000 



S,.370,0(10 

2,018,000 

7,662,000 

■530,000 

3,791,000 

9,916,000 

21,13y,O0O 

56,335,000 

11,886,000 

4.041,000 

7,192,000 

2,692,000 

34,721,000 

1,803,000 

7,176,000 

2,509,000 

1,922,000 



2,839.000 

240,000 
3,522,000 

271,000 
1,343,000 
2,964,000 
5,478,000 
29,089,000 
1,781,000 

649,000 
4482,000 

272,000 
28,680,000 

153,000 
1,233,000 
1,045,000 

183,000 



1,000 
1,000 
1.000 
101,000 
1,000 
,192.000 
1.000 
1,000 



1,000 
1,000 



1,446,000 
387,000 

1,472,000 
93,000 
548,000 

1,438,000 

3,944,000 
12,003 000 

2,381,000 
582,000 

1,373,000 
320,000 

8,893,000 
232,000 
995,000 
436,000 
263,000 



703,000 

183,000 

561,000 

16,000 

302,000 

1,350,000 

1,603,000 

4,354,000 

958,000 . 

168,000 

714,000 

134,000 

2,062,000 

92,000 

575,000 

148,000 

149,000 



660.000 
67,000 
,592,000 
232,000 
984,000 
572,000 
1,898,000 
:,624,000 
580,000 
314,000 
684,000 
149,000 
,167,000 
339,000 
715^000 
338,000 
154,000 



7. .300 
2,500 
11,650 
5,000 
10,350 
76,000 
35,250 
74,000 
2,500 
9,250 
50,000 
7,500 
40,000 
12,500 
20,000 
15,000 



201,000 

28,000 
393,000 

63,030 
117,000 
185,000 
639,000 
,076,000 
259,000 

38,000 
329,000 

29,000 
635,000 
"132,000 
455,000 
107,000 

46,000 



1,055,000 National Union 2 

185,000 Old Boston National 3 

901,000 State National 4 

35,000 New England National 5 

376,000 Atlantic National 12 

950,000 Merchants National 13 

2,201,000 Second National 17 

7,610,000 National Shawmut 20 

1,260,000 Nat'l B'k of Commerce 22 

483,000 Webster and Atlas Nat'l 25 

1,085,000 Eliot National 26 

352,000 Boylston National 32 

6,000,000 First National 39 

101,000 National Security 46 

477,000 Fourth National 51 

348,000 Winthrop National 53 

180 000 Commercial National 56, 



C0MP.\HIS0NS, 



Reserve excess. 



>16,S46,000 7,555,000 

Dec. Dec. 

403,000 11,000 



183.738,000 

Dec. 

1,615,000 



!4, 224,000 

Dec. 

497,000 



2,009,000 
Dec. 
9,000 



30,809,000 
Inc. 
384,000 



14,072,000 



24,099,000 
Inc. 
236,000 



386,500 4,735,000 
Dec. Dec. 
2,000 129,000 



23,599,000 
Dec. 
53,000 



986,000. Decn 



158,571. E\cess with Reserve Agents, 9,461,000. Increase, 407,429. 



Week ending August 14, 1909 149,210,030 

Corresponding week 1908 141,234,242. 

Week ending August 7, 1909 171,902,286 



9,773,688 
8,393,710 
11,090,558 



Collections Foreign Dki 
11,072,516 
10,810,682 
10,287,694 



Statement of Weekly Averages of the Associated Banks of 



20040—10, (To face page 252.) 



Clearin^'House^ Methods 









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253 



National Monetary Commission 

actions of this kind, it would seem, ought to be noted in 
the clearing-house records. 

A special committee has in charge the deposits of gold 
coin and gold, silver, and legal-tender notes, by member 
banks of the Boston clearing house as a special trust fund, 
against which negotiable certificates are issued. The gold 
coin and various kinds of notes are stored in rented vaults, 
the clearing house occupying leased quarters and there- 
fore having no accommodations of its own suitable for the 
purpose. The fund so deposited at the present time 
amounts to about $3,000,000 in gold coin and about 
$4,250,000 in notes, and certificates to a like amount have 
been issued against it. 

On obtaining the written assent of the clearing-house 
committee, members of the association are allowed to 
clear for outside banks and trust companies; but any 
bank, member of the association, making such exchanges, 
is liable therefor, and in the same manner as for its own 
exchanges and until at least one day's notice in writing 
is given to the clearing-house committee. Accordingly, 
in Boston and vicinity, and within a radius of ten miles 
from State street, are no less than 24 banks and trust 
companies making their exchanges through members of 
the association, upon such terms of security as are agreed 
upon between them and the clearing members. Full re- 
sponsibility for their acts is placed upon the members 
through which they clear. 

No statements whatsoever are required by the associa- 
tion from such outside institutions, it being left wholly to 
the members to determine their condition. Members, 



254 



Clearing-House M e t h o d s 

however, are required to furnish the manager weekly state- 
ments of condition. An example of the form employed is 
given among the illustrations. A statement is also sub- 
mitted of the condition of the associated banks of Boston, 
as returned to the clearing house for a given week. 

It will be noted further that there is a wide difference 
in the items included in the two statements. At Boston 
they are given under 12 heads, and at New York under 7. 
The only item called for by the New York statement, 
not included in the same at Boston, is "Net profits," 
while the item of **Loan" in the Boston statement is 
reported as ''Loans and discounts" in New York. ''De- 
posits," as reported at New York, is given in Boston under 
three heads, "Individual deposits," "Due to banks," and 
"United States deposits." "Bills payable," which for- 
merly appeared in the Boston statement, has been 
omitted for several years past. The requirement of the 
items, "Due from reserve agents," "Exchanges for clear- 
ing house," " Due from banks other than reserve agents," 
and "5 per cent fund," is not made by the New York 
association. 

In addition to the protection furnished by these 
statements, the clearing-house committee is empowered 
to examine any bank belonging to the association, and 
to require from said bank securities of such an amount 
and character as the committee may deem sufficient for 
the protection of the balances at the clearing house, 
whenever it shall be for the best interests of the associa- 
tion. Thus a member may be found to be weak and 
in danger of failure. If it is unable to pay its balances 



255 



National Monetary Commission 

at the clearing house, these securities will be appropriated 
for that purpose. 

The expense of printing is borne equally by the 
members, and all other expenses are defrayed by an 
annual assessment of $125 upon each member, and the 
remainder after that amount pro rata the average daily 
amount which each bank has sent to the clearing house 
during the preceding year. 

Upon each nonmember clearing through the associa- 
tion an assessment is made as follows: Four hundred 
dollars per annum on mstitutions whose capital is $500,000 
or less ; $600 on institutions whose capital is over $500,000 
and less than $1,000,000, and $800 on all whose capital 
exceeds $1,000,000. 

Admissions to membership may be made from time 
to time according to the following rule: 

New members may be admitted to this association on the recommenda- 
tion of the clearing-house committee, by an affirmative vote of three- 
fourths of all the members of this association, at a meeting called for the 
purpose, such vote to be taken by ballot; and each member thus elected 
shall, before admission, pay an admission fee of $5,000 and assent and 
subscribe to this constitution in the manner hereinafter provided. 

For cause deemed sufficient, any member may be 
expelled from the association by a majority vote of 
all the members. The constitution declares that before 
withdrawal a member must pay its due proportion of 
all expenses for the current year and give three months* 
notice in writing of such intention to the secretary. 

In practice, however, if a member desiring to with- 
draw pays its expenses, in compliance with the above 
requirement, and there is no objection on the part of 
the association, it may withdraw in less than the speci- 

256 



Clearing-House Methods 

fied time, as was true of the Hancock Bank, which with- 
drew on thirty days' notice. The power of suspension 
is lodged with the clearing-house committee, but at least 
four of the five members of the committee must be in 
favor of such suspension, and the committee must forth- 
with call a meeting of the association to take the matter 
into consideration. 

As shown before, the clearing-house association at 
New York was the only one in America when the bankers 
at Boston founded their clearing house. In nearly all 
the details of method and administration the rules 
established at New York were taken as a basis. As 
time went by a few changes were found necessary, par- 
ticularly in reference to administration, and hence it is 
unnecessary here to deal elaborately with this phase of 
the subject. 

The usual meetings of the association are held once 
each year, and at such other times as the clearing-house 
committee may designate on their own responsibility or 
when requested to do so by any five of the associated 
banks. Owing to the difficulty of obtaining a quorum, 
the required number was fixed at one-third instead of 
one-half of all the members, as in most associations. 

At each annual meeting a chairman and a secretary 
are chosen by ballot, to hold office for one year or until 
their successors are chosen. At the same meeting a 
nominating committee of three persons is selected, whose 
duty it is to present to each bank belonging to the associa- 
tion a list of nominees for officers for the succeeding year, 
such list to be presented at least two weeks before the 



257 



National Monetary Commission 

meeting next after their election. A standing committee 
of five bank presidents or other directors of banks, mem- 
bers of the association, to be called the "clearing-house 
committee," is elected annually, to serve for one year, 
and to their care most of the important interests of the 
association are intrusted, as at New York and elsewhere. 
They appoint the manager, whose salary is fixed by the 
association, and who is required to give bond in the sum 
of $20,000, such bond to be approved by the clearing- 
house committee. The duties of the manager consist 
in supervising the exchanges between the banks and the 
settlements of balances. He is in immediate control of 
all the business transactions of the clearing house, dis- 
charging all the duties usually incumbent upon such 
officers. 

In another chapter is given an account of the foreign 
department of the Boston clearing house, being the 
outgrowth of an experiment which was commenced in 
June, 1899. 



258 



Chapter XVII. 

FOREIGN DEPARTMENT OF THE BOSTON CLEARING 

HOUSE. 

ORGANIZATION AND HISTORY — REGUI^ATIONS — TWO CI.EAR- 
ING HOURS — BI^ANKS AND FORMS — FINES — BOOK- 
KEEPING. 

The Boston Clearing House Association has had in 
operation for several years past a plan of making collec- 
tions in the territory naturally tributary to that city 
but outside of the city itself. It is known as the ''for- 
eign department of the clearing-house association," and 
is conducted independently of the regular clearings of 
that organization. 

The question of collecting out-of-the-city checks had 
been discussed by members of the Boston Clearing House 
Association for a long time, and finally, early in the 
year 1899, a special committee was appointed to which 
the whole subject of collecting checks throughout the dis- 
trict known as New England was referred. This com- 
mittee, after careful deliberation, reported that in its 
judgment it was advisable and practicable for the clearing 
house to undertake the collection of such checks and to 
distribute the proceeds thereof. The committee advised 
beginning with the State of Massachusetts; and adding 
the other New England States one by one, as soon as 
the proper provision for the same could be made. 

259 



National Monetary Commission 

The report of the committee further recommended 
that the work be done at the clearing house by the man- 
ager, under the supervision of the clearing-house com- 
mittee. It nominated the following routine: 

Those banks which choose to avail themselves of this method of collect- 
ing their checks shall deposit them at some fixed hour, say at i o'clock, of 
each day. The checks are then to be assorted and the checks on each 
out-of-town bank made up in a separate package. To this package a 
slip shall be attached bearing a list of the checks, and, further, a com- 
plete list is to accompany the checks, showing the total of the amount on 
each bank, respectively. The clearing-house employees assigned to that 
duty shall send the checks forward to the banks on which they are drawn, 
so far as such banks will undertake to remit for checks on themselves by 
drafts on their Boston or New York correspondents. 

It was further suggested that in some cases checks on 
all the banks in one town or city might be collected 
through a single bank. The checks were to be sent by 
mail or by express, as found desirable. 

The report further set forth that the manager of the 
clearing house should have a desk and number assigned 
to him, and should take part in the morning settlements, 
collecting through such settlements the various checks on 
Boston banks received by him, and paying in the same 
way to the Boston banks their respective proportions of 
the checks forwarded two days previously, as might be 
arranged. Each day's settlements by the manager, the 
report continued, should represent the amount of foreign 
checks received on a certain previous day, and the debits 
and credits should be equal in amount. In case, however, 
remittances vShould be delayed so that the manager was 
without sufficient funds to meet the charges against him, 
he would charge against the several banks, through the 
morning settlements, their respective amounts of such 



260 



Clearing-House Methods 

delayed remittances, or settle with the banks in their 
respective proportions of such delayed remittances in the 
payment of balances by the debtor banks and the distri- 
bution of balances to the creditor banks. The report was 
accompanied by various forms w^hich were subsequently 
adopted for use. 

This report was approved, and at a meeting held De- 
cember 1 8, 1899, the following amendment to the con- 
stitution, which had been recommended by the clearing- 
house committee, was adopted: 

The clearing-house association shall have the power to establish rules 
and regulations regarding collections by members of the association, or 
banks, or trust companies, or others clearing through such members, and 
the rates to be charged for such collections, and also to provide for the 
enforcement of the same. The association may from time to time make 
any additions to or changes in such rules and regulations as it deems 
judicious. Any rule or regulation upon the subject can be established 
only by a vote of the majority of all the members of the association, and 
when once established it shall not be altered until it has been in force at 
least three months, and then only by a majority vote of all the members 
of the association. 

Under this provision rules and regulations were adopted 
at a meeting held December 27, as follows: 

Section i . These rules and regulations shall apply to all members of the 
association and to all banks or trust companies or others clearing through 
such members. The parties to which the same so apply are hereinafter 
described as collecting banks. 

Sec. 2. For all checks and drafts from whomsoever received, drawn 
upon any New England bank or trust company or banking house or other 
banking institution, which does not pay checks and drafts drawn upon 
itself and sent through the Boston clearing house by remitting therefor 
on receipt thereof promptly at par checks upon some member of the 
Boston or New York clearing house, or upon a banking institution clearing 
through some such member, the collecting banks shall charge not less 
than one-tenth of i per cent of the amount of such checks and drafts, 
respectively. 

Sec. 3. In case the charge upon any check or draft at the rate above 
specified does not equal 10 cents, the collecting bank shall charge not less 
than that sum; but all checks and drafts received from any one depositor 

261 



National M o n et ar y Commission 



or correspondent on the same day, and payable by the same institution, 
may be added together and treated as one item for the purpose of fixing 
the amount to be charged. 

Sec. 4. The charges herein specified are in all cases to be collected at 
the time of deposit or not later than the tenth day of the following calendar 
month. No collecting bank shall directly or indirectly allow any abate- 
ment, rebate, or return for or on account of such charges or make in any 
form any compensation therefor. 

Skc. 5. In case any member of the association shall learn that these 
rules and regulations have been violated by any of the collecting banks, it 
shall immediately report the facts to the chairman of the clearing-house 
committee or, in his absence, to the manager of the clearing house. Upon 
receiving information from any source that there has been a violation of 
the same, said chairman or, in his absence, said manager shall call a meeting 
of the committee. The committee shall investigate the facts and deter- 
mine whether a formal hearing is necessary. In case the committee so 
concludes, it shall instruct the manager to formulate charges and present 
them to the committee. A copy of the charges, together with written 
notice of the time and place fixed for hearing regarding the same, shall be 
served upon the collecting bank charged with such violation, which shall 
have the right at any hearing to introduce such relevant evidence and 
submit such argument as it may desire. The committee shall hear what- 
ever relevant evidence may be offered by any person and whatever argu- 
ments may be submitted, and shall determine whether the charges are 
sustained. In case it reaches the conclusion that they are, the committee 
shall call a special meeting of the association and report thereto the facts, 
with its conclusions. If the report of the committee is approved by the 
association, the collecting bank charged with such violation shall pay to 
the association the sum of $1,000; and in case of a second violation 
of these rules and regulations, any collecting bank m.ay also, in the dis- 
cretion of the association, be excluded from using its privileges, directly 
or indirectly, and, if it is a member, expelled from the association. 

Sec. 6. Every collecting bank, as defined in section i of these rules and 
regulations, shall forthwith adopt, by its board of directors, a resolution in 
the following terms, and file a certified copy thereof with the association 
as evidence as therein specified : 

Whereas this corporation has acquired the privilege of clearing and 
making exchange of its checks through the Boston Clearing House Asso- 
ciation, and is subject to its rules and regulations: Now, therefore, 

Be it resolved, That this corporation hereby in all respects assents to 
and agrees to be bound by and to comply with all rules and regulations 
regarding collections outside of the city of Boston which may be established 
pursuant to the constitution of said association, and that the president of 
this corporation is hereby instructed to file a certified copy of this resolu- 
tion with the clearing-house association as evidence of such assent and 
agreement on the part of this corporation. 

262 



Clearing-House Methods 

It was provided that the above should go into effect 
on January i, 1900. In putting the plan into operation, 
the manager of the clearing house prepared two lists 
of banks, one comprising those banks the location of which 
with respect to the closing of mails, etc., required that 
checks should be deposited with the manager not later than 
I o'clock and the other permitting the deposit of checks not 
later than 3 o'clock of each business day, in order to be 
sent in the mail of the same day. This resulted in what is 
in effect two clearing hours for the foreign department. 
Saturdays are exceptions to the general rule, and with 
respect to that day it is provided that all checks shall be 
deposited not later than i o'clock. These requirements 
were later changed so that the checks to be so cleared shall 
be deposited not later than 3.30 o'clock on each business 
day, except Saturday, when it is provided that they shall 
be received not later than 1.15 o'clock, thus giving the 
banks from fifteen to thirty minutes more leeway than was 
originally provided. 

The regulations for the collection of out-of-town checks, 
formulated by the manager of the clearing house, include 
the following: 

Every check must be stamped by the bank depositing 
it, according to the following form : 



Received payment through the 

Boston Clearing House. 
Prior indorsements guaranteed. 

Bank 

of Boston 

by 

Cashier, 



263 



National Monetary Commission 



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264 



Clearing-House Methods 

The checks on each bank must be placed in a separate 
pa.ckage, with a sHp attached containing a list of the 
checks, the name of the bank on which they are drawn, 
and a footing; and the check ticket attached to the slip 
must also be filled out and the name of the bank and the 
footing of the checks placed thereon. Whenever there is 
but one check on a bank it will still be necessary to have 
the clearing-house slip attached, with the name of the 
bank and the amount of the check placed upon both slip 
and check ticket. These packages must be assorted al- 
phabetically, according to the names of the respective 
towns in which the banks are situated, and must be deliv- 
ered by the messengers of the banks at the proper desks for 
the respective letters. 

By 1. 1 5 o'clock p. m. on Saturdays, and on other days 
before 3.30 o'clock p. m., each bank must send to the 
clearing house, by its messenger, a ticket showing the total 
amount of checks left for collection that day, and receive 
a charge ticket showing the date on which it is to be 
charged into the regular morning settlements against the 
manager. The manager is known as No. 100, and joins 
in the settlements on the same footing as any one of the 
banks. 

Banks are requested to see that all indorsements are in 
order. No examination of packages or checks will be 
made by the officers or employees of the clearing house. 

If the remittance from any Massachusetts bank shall not 
have been received on the morning on which the charge 
tickets are to be charged against the manager of the clear- 
ing house, the manager will charge against each Boston 

20040 — 10 18 265 



National Monetary Commission 



Boston Clenring' house. 

Gloucester Safe Dep. & Tr. Co., 
Gloucester, Mass. 



FROI^ 



DATE^. 



Gloucester Safe Dep. & Tr. Co., 
Gloucester, Mass. 



FROM 



DATE. 



I LI 



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266 



Clearing-House Methods 

bank its proportionate amount of such delayed remittance, 
as well as the amount of any protested or unpaid checks 
received from any Boston bank. 

New York exchange and currency received in payment 
of collections will be charged at par against the several 
Boston banks from time to time, under the direction of 
the clearing-house committee, in proportion to the busi- 
ness of each bank, and the amounts of any such charges 
will be reported to the president, cashier, or other repre- 
sentative of each bank at the 1.15 o'clock clearing. 

A fine of $2 will be collected from any bank which is late 
at either the 1.15 o'clock or the 3.30 o'clock settlement, 
and its checks may be refused by the manager, at his dis- 
cretion, if presented more than ten minutes late. Any bank 
not sending to the manager of the clearing house by 1.15 
o'clock on Saturdays, and on other days before 3.30 
o'clock, a ticket showing the total amount of out-of-town 
checks it has deposited at the clearing house that day 
will be fined $4. A fine of $4 will also be imposed for 
any mistake in the amount of such deposit so reported. 
An incomplete or incorrectly filled slip or check ticket is 
fined $1. 

The forms used by the foreign department of the Boston 
Clearing House — in fact, the actual stationery — have been 
largety borrowed from the forms employed in the regular 
clearings. Minor adaptations have been made in certain 
forms, and in cases where absolutely necessary new forms 
have been designed and printed. The deposit ticket, a 
sample of which is shown among the illustrations, contains 
little more than the name of the bank making the deposit, 



267 



National Monetary Commission 













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268 



Clearing-House Methods 

the date, and the amount of checks left for collection. 
The receipt corresponding to this, which is also repro- 
duced among the illustrations, is likewise very simple in 
its details. There is the name of the bank, the reported 
amount of the checks, the date at which the amount is 
payable, if the checks prove good, and the signature of 
the manager. 

The detailed statements of checks deposited for col- 
lection, known as foreign slips, a sample of one of which is 
shown herewith, are of different colors of paper, thereby 
readily distinguishing the items of one State from those of 
another. Rhode Island, for example, is straw color, 
Connecticut blue, etc. This slip gives the name and the 
location of the bank on which the checks are drawn and 
the name of the bank depositing them for collection. 
There is a coupon at the bottom which recounts the name 
of the bank making the deposit, the date, the name of the 
bank on which the checks are drawn, its location, and the 
amount. 

The letter form used in transmitting the checks for 
collection to the several banks on which they are drawn 
is presented among the illustrations. In the blank space 
below the signature of the manager the footings of the 
several slips prepared by the banks are inserted. As 
this account is made up, the stubs from the foreign-slip 
tickets (see previous illustration), being that part des- 
ignated as the foreign-check ticket, is detached and is 
retained by the clearing-house manager as evidence of 
the amount that is inserted in the letter. The coupon 
at the bottom of the letter itself is likewise retained for 



269 



National Monetary Commission 



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270 



Clearing-House Methods 

bookkeeping purposes and is the basis for charging the 
account with the bank. The amount represented by it 
is the aggregate of all of the stubs of the slips inclosed 
with the letter. 

For the purpose of making up the accounts — that is, 
filling out the letters of transmission and otherwise com- 
pleting the work — a number of Burroughs 's arithmom- 
eters are employed. In other words, the machine that 
is largely in use among banks throughout the United 
States for listing vouchers returned, etc., is used in mak- 
ing up the records of remittances. Enough of these 
machines are used, and so skillful are the employees in 
their manipulation of them, that in a surprisingly short 
period of time after the exchanges have been completed 
the lists for the individual banks are made up and the 
matter placed in the mails or the hands of the express 
companies, as the case may be. 

The settling clerk's statement, also shown in the illus- 
trations, has five columns. The first records debit 
remittance checks; the second column contains debit of 
uncollected checks; the third records credit checks for 
collection; the fointh, credit adjustments; and the fifth, 
credit receipts. This sheet in use is of the conventional 
size, with the names of the banks printed down the left- 
hand margin and numbered, and corresponding numbers 
placed at the ends of the lines on the right-hand margin. 

The bookkeeping employed in the foreign department 
of the Boston clearing house is very simple in character. 
The outward posting medimns, as already explained, are 
the stubs of the letters. The inward posting mediums 



271 



National Monetary Commission 



C. A. RUGGLES, Manager. 

BOSTON CLEARING-HOUSE. 

Boston^ 



To the Cashier of the 

^^ National Bank oL 



Dear Sit : 

Enclosed find checks on your Bank as listed below^ 
for the amount of which please remit by return mail 
a draft on your Boston correspondent^ payable to the 
order of the Manager of the Boston Clearing-house* 

Please do not delay the protest or return of any 
check not good, but return it^ under protest if neces- 
sary {deducting check and fee from remittance). Any 
special instructions on slip or check should be ob^ 
served Do not protest checks of ten dollars or 
under unless requested to do so. 
Yours truly, 

C* A. RUGGLES, Manager. 



National Bank 



Date^_ Amount,. 



Form of Lettkh of TRANSMisjbioN to Corrkspondentss 



Clearing-House M e t h o d s 

are the letters from the out-of-town banks inclosing 
remittance checks. Of necessity, an account is opened 
with each bank to which collections are forwarded. At 
the outset it is charged with the amounts sent to it for 
collection, and in turn, as remittances are received, it is 
credited. 

With respect to the inward posting mediums, it some- 
times transpires that the banks making returns send 
back the original letter inclosing collections. This, of 
course, answers every purpose in the clearing house. 

The ledger at present in use has the names of the 
various out-of-town banks printed down the left-hand 
margins of the page, there being a line to each. There 
is a debit and a credit column for each day occupying 
the space to the right of the names. The ledger is simi- 
lar in form to certain varieties of deposit ledgers in use 
among banks, and is of a variety that is sometimes 
described as a progressive ledger. As already men- 
tioned, the banks are debited with the items sent out 
and credited with the remittances. The debits, of 
course, precede the credits by one, two, three, or four 
days, according to the location of the banks. Where- 
ever the remittances come in promptly, the columns, tak- 
ing the banks collectively on a page, balance. Where- 
ever one or more remittances are delayed, the columns, 
of course, are out of balance, thereby directing attention 
instantly to the delinquent. 

The following is a memorandum of the volume of busi- 
ness in round figures, handled annually by this depart- 
ment of the clearing house: 



273 



National Monetary Commission 

1900 $541 , 000, 000 

1901 565, 000, 000 

1902 607, 000, 000 

1903 658, 000, 000 

1 904 594, 000, 000 

1 905 595, 000, 000 

1906 635, 000, 000 

1907 633, 000, 000 

1908 564, 000, 000 

The cost of collecting these items has averaged about 
7 cents per $1,000, the total cost of the maintenance 
of the department, including rent, clerk hire, and all 
expenses of every character, being about $42,000 
annually. 

Six hundred and forty-one New England banks and 
trust companies are corresponded with at the present 
time, and the average number of packages handled daily 
during the year 1908 was 5,491. The average daily 
remittances by correspondents during that period has 
been 94 per cent, which means that only 6 per cent of 
the amount due daily was charged back pro rata, through 
the clearings, to the banks, in order that the manager's 
payments and receipts would each day exactly balance. 
The necessity for this charge back of 6 per cent is due 
to the fact that it is impossible to receive returns in less 
than three days from banks located in the northern part 
of the States of New Hampshire, Vermont, and Maine. 

It is stated for this system, by those who are in close 
touch with it, that it accomplishes all and more than was 
expected of it, and that it has been the means of a big 
saving of money to the banks. That the banks have 
supported it loyally would seem to be indicated by the vol- 
ume of business annually turned over to it for collection. 



274 




275 



Chapter XVIII. 
THE CHICAGO CLEARING HOUSE. 

DATE AND HISTORY OF FORMATION — METHODS OF EX- 
CHANGE — PREUMINARY EXCHANGES AMONG MEM- 
BERS — KINDS OF MONEY EMPLOYED IN SETTUNG BAL- 
ANCES — TRADING BALANCES — NONMEMBER BANKS THAT 
CLEAR — STATEMENTS OF CONDITION — EXPENSES AND 

FINES — ADMISSIONS AND EXPULSIONS VOLUME OF 

CLEARINGS — ADMINISTRATION. 

The practical utility of clearing houses had been 
attested in the United States by more than ten years 
of successful operation, when Chicago, in April, 1865, 
formed an association on lines substantially identical 
with those of the leading cities of the East. Although 
the Chicago clearing house performs essentially the 
same functions as do the clearing houses of other impor- 
tant centers, yet in the course of time circumstances 
have wrought many changes in its constitution which 
have tended to' give it a character peculiarly its own. 
The membership (now 20 in number) at the date of 
the organization embraced nearly all the banks and 
bankers in the city. Although at one time the list went 
up to 30, there are at the present time only 20 members, 
the vicissitudes of the banking business in Chicago in the 
interval accounting for the increase and subsequent 
decrease. The membership as at present made up 

276 



Clearing-House Methods 

embraces 9 national banks, 7 trust companies, 2 state 
banks, the Chicago branch of the Bank of Montreal, and 
the subtreasury of the United States at Chicago. 

The requirements for membership at the outset were 
not so rigid as they are at present. No minimum limit 
was placed upon the capital necessary for membership. 
As a fact, many of the members had but small capital 
and limited experience. Further, at that stage of the 
development of the clearing system experience did not 
demand what has since been found to be very essential. 

The Chicago clearing house progressed with uniform 
success from the date of its organization in 1865 until 
1 87 1, when all the interests of the city sustained a severe 
shock by the great fire which swept over the city. In 
that fire some portion of the records of the clearing house 
was lost. Soon after the fire the panic of 1873 occurred, 
and in that crisis a number of the members fell out of line. 
Still other vicissitudes, some of which were peculiar to 
the organization itself, served still further to retard its 
growth and progress. In 1882 the Chicago clearing 
house was formally incorporated under the laws of the 
State. 

The failure of members in this organization has never 
given occasion for litigation. Those members who have 
been so unfortunate as to fail have seldom attempted to 
clear on the day of their failure. In most cases they 
have given notice of their condition in ample time for 
their exchange to be withdrawn. When, however, a 
failing bank has attempted to make its regular clearings 
and has not been able to pay the balance against it at 



277 



National Monetary Commission 

the clearing house, all the exchanges presented by and 
against it have been returned and a new settlement 
made, the same as if it had not participated in the ex- 
changes of the day. In this way those who had pre- 
sented checks against the failing member were enabled 
to return them to their customers, thereby intrenching 
themselves against loss. No formal provision was made 
for such action at the outset, but as time passed on this 
course was found to be the best means by which to avoid 
serious complications. Accordingly, the rule has been 
embodied in the constitution. It is similar in its pro- 
visions to that existing in the constitutions of nearly all 
the clearing-house associations of the country. 

The history of this organization shows comparatively 
few failures. The membership, however, has been repeat- 
edly reduced by consolidations. 

We now come to an analysis of the methods of exchange 
pursued by this body, and, as we proceed, we shall find 
that in these details Chicago, quite as much as any of 
the larger cities of the East, presents certain striking 
features of its own which are not to be found in the 
others. 

The exchanges in Chicago are made on each business 
day at 1 1 o'clock, except Saturday, when they are made 
at lo o'clock. 

Each bank sends from two to three representatives to 
the clearing house, with its claims separately made out 
against each of the other members. One of the repre- 
sentatives of each bank stations himself immediately 
opposite the desk bearing the mmiber of his bank, first 



278 



Clearing-House Methods 

having deposited with the manager a ticket which states 
the amount of the exchanges that his bank^ has sent to 
the clearing house. On receipt of the ticket the manager 
immediately enters in the credit column of the sheet 
before him the amount stated thereon. This sheet is 
ruled in four columns, for the entry of the credit and 
debit exchanges and for showing the credit and debit 
balances. Standing in front of each of the representa- 
tives of the banks above mentioned is the messenger 
from the same bank, with a bundle of exchanges ready 
to be delivered at the desk of each of the other banks. 

Precisely at ii o'clock, or as soon as all are present, 
a gong is struck, and thereupon the messengers begin 
the delivery of the checks, passing around the double 
row of desks and depositing with the clerk of each of the 
banks the exchanges drawn upon it. While delivering 
the checks the messenger passes from clerk to clerk a 
sheet containing the amounts to the debit of each, and 
upon this the several clerks receipt for the checks they 
receive. 

When the packages have all been delivered and re- 
ceipted for, they are taken to the several banks by mes- 
sengers, the sheets being passed around by other messen- 
gers, who, with the clerks, remain at the clearing house. 
As the sheets are thus being passed along, each clerk 
enters the amount charged to his bank on the debit side 
of the page in a book which he has brought with him for 
that purpose. 

These books are ruled in four columns, for the entry of 
the amount brought, the amount received, the credit 



279 



National Monetary Commission 

balance, and the debit balance, respectively. One 
column is filled out before the messenger comes to the 
clearing house, and that is the amount brought, or, as 
described above, the credit column. 

When the debit entries have all been made from the 
sheets, the balance is struck by taking the difference 
between the total of the amount brought and the amoimts 
received. Each clerk now makes out, as quickly as 
possible, a ticket showing the total amount brought, the 
amount received, and the balance, and hands the same 
to the manager. 

It is clear in each case that if the amount brought 
exceeds the amount received, the balance will be in his 
favor and vice versa. The manager, upon receiving 
these tickets, immediately enters the amounts in the 
debit column of his sheet, and the balances shown in the 
credit balance column, or the debit balance column, as 
the case may be. It now remains to foot up the columns. 
If the amounts brought and the amounts received agree, 
and if the debit and credit balances likewise agree, the 
manager announces that the work is correct, and there- 
upon the several clerks immediately return to their banks. 
If, on the other hand, these amounts do not agree, the 
discrepancy is announced by the manager, whereupon the 
clerks proceed to search for the error. A search of this 
kind requires skill and accuracy at figures, for it is fre- 
quently necessary to foot up long columns of figures and 
even to call back the entries between banks in order to 
locate the error. If the mistake is not soon found, the 
anxiety becomes apparent, for a fine of $2 is imposed upon 



280 



Clearing-House Methods 

the unfortunate member whose error has caused the 
trouble if the mistake is not located in twenty minutes. 

The custom of exchanging checks and other items 
among themselves before the hour for exchanging at the 
clearing house has grown up among the members of this 
organization. For example, members A, B, C, and D 
may be located in close proximity. Therefore, for con- 
venience in making early entries of items, they exchange 
among themselves the checks which they hold against 
each other. The settlement of balances arising in this 
way is made at the same time and in the same manner as 
if the exchanges had taken place at the clearing house. 

All banks which find themselves debtors in the ex- 
changes are allowed from 12 to 12.30 o'clock to settle 
their balances with the manager at the clearing house. 
The creditor banks receive their balances between 12.30 
and 12.45 o'clock. On Saturdays these transactions are 
one hour earlier. 

The method of settlement in Chicago differs materially 
from that which prevails in New York, Boston, and 
Philadelphia, and, indeed, from that of all other impor- 
tant clearing houses in this country. I^ess than 25 per 
cent of the balances are settled with currency and gold 
coin. The latter is used only to a very limited extent. 

The following is the substance of the by-law of this 
organization relating to kinds of money to be used in 
settlement of balances, as amended in October, 1899: 

All payments to the Chicago clearing house by the 
different members of said association shall be made in 
United States gold coin or United States Treasury certifi- 

20040 — 10 19 281 



National Monetary Commission 

cates therefor payable in Chicago, in United States legal 
tender notes or Treasury notes, or United States Treasury 
certificates therefor payable in Chicago, and in United 
States gold and silver certificates. 

All gold paid to the clearing house in settlement of 
balances shall be put up in strong canvas bags, each con- 
taining $5,000; all coins in any one bag to be full weight 
and of one denomination; the bags to be securely fas- 
tened with a lead seal bearing the name and clearing- 
house number of the member putting up such package, in 
such manner that in the opinion of the manager of the 
clearing house the fastenings can not be sufficiently 
released to allow of the removal of any of the contents 
without mutilating the seal. Every such package shall 
have a suitable label or tag attached, bearing the name of 
the sealing member, the amount of the contents, denomi- 
nation, date of sealing, and signature of the person or per- 
sons duly authorized to date or seal the same. 

All currency other than coin paid to the clearing house 
in settlement of balances, except notes of the denomina- 
tion of $50 or larger, shall be put up in packages, each 
containing $5,000 or $10,000. All the notes included in 
any package shall be of one denomination, inclosed in 
bands containing each 100 notes and no more. The de- 
nomination, kind of currency, and amount shall be plainly 
marked on the cover of the package, with the name of the 
member of the association putting up the same, date of 
sealing, and signature of the person or persons duly 
authorized to date or seal the same. Every such package 
shall be inclosed between cardboards of the full width and 



282 



Clearing-House Methods 



REPORT TO MANAGER 
C, H. Bank No...... „ 



TRADES WHOLE BALANCE. 

PAYS IN S - ....._..._._ 

COLLECTS S „..„ v.^.^ .- 



REPORT TO BANK 
C. H, Bank No. 



DR. 3AL. S 
CR. " $. 



Forms of Reports Us?o ?n Trading Bala.nces^ 



283 



National M o n e t ar y Commission 

length of the notes, placed on the upper and lower sides 
thereof, and shall be tied with twine and securely sealed 
with wax seals bearing the imprint of the member putting 
up the same. All notes included in such package shall be 
in good condition and fit for circulation and of the denomi- 
nation of either $5, $10, or $20. 

For each and every violation of any of the regulations 
contained in the paragraphs relating to gold and currency 
above, the manager shall impose a fine of $5 on the offend- 
ing member. 

The value of every package of gold or currency put up 
in accordance with the provisions of this by-law shall be 
guaranteed by the member whose seal it bears, until and 
including the 15th day of March, June, September, or 
December, whichever month shall come next after its 
authorized date, or redate, and in case of any shortage, 
either in count or weight, the member putting up the 
same shall on demand immediately make good any such 
shortage to the member breaking the seal. This guar- 
anty shall not extend to any package which shall have 
passed into the hands of any person or corporation not a 
member of the association. 

Chicago has developed a peculiar custom of trading 
balances, and so extensive has this practice become that 
perhaps 75 per cent of the balances are disposed of in this 
way. It began many years ago, and originated in a desire 
to avoid the counting and carrying of so much money 
through the streets as would be necessary to settle the bal- 
ances. The trading is done mainly by the clerks at the 
clearing house. As soon as they strike their balance, and 



284 



Clearing' House Methods 

while the manager is entering upon his sheet the amounts 
and balances, and footing the columns, the clerks repre- 
senting the creditor banks engage in loaning balances to 
the representatives of the debtor banks. The clerks are 
not given full liberty of action, but are very generally 
instructed by their banks regarding the amounts to be 
traded and the members with which trades may be made. 
Any member may trade its whole balance, or any part 
thereof. It may trade its balance to a single member, or 
to two or more members. 

A notable example of this kind occurred in August, 
1897, when the Northwestern National Bank traded its 
balance to 15 different banks. The credit balance of this 
bank was $2,622,000, which amount was more than 98 
per cent of the credit balance of all the banks, there being 
on that day only two other creditor banks out of the whole 
list of 22 members. 

Some banks do not find it to their advantage to trade, 
and hence adjust their balances by cash settlements. At 
the conclusion of the trades, the representatives of the 
banks make out and hand to the manager reports of the 
tradings, as shown by the accompanying form. This 
form, it will be noticed, is provided with a coupon which 
embodies a report to the bank. 

The formal order by which the transfer is made is shown 
in the second of the accompanying forms. Manifestly, it 
would be impossible for the manager of the clearing house 
to ascertain from the reports just illustrated whether a 
given bank had traded to a single bank or to a number of 
banks, and also with what bank or banks the trade had 



285 



National Monetary C omm is s io 



n 



been negotiated. This fact is determined by an order or 
orders upon the manager of the clearing house from the 
cashier of each creditor bank which has negotiated a trade, 
to pay to a specified bank or banks certain portions of its 
balances each, such sum to be deducted from the balances 
due from the exchange of that day. For example, B, a 
creditor bank, gives an order on the manager of the clear- 
ing house, signed by the cashier, to pay C, D, or E, or any 
one of them, a part of its balance, or the whole of the sum 
which it may have traded to them at the clearing house. 
The manager deducts such an amount from the debit bal- 
ances due the clearing house by C, D, and E, respectively. 
Hence they are required to pay to the clearing house only the 
difference between such orders and their debit balances. 

The manager also obtains another kind of receipt — 
namely, the orders to the clearing-house manager to pay 
to the authorized messengers the balances in cash due 
from the exchanges of that day. The form of this order 
is also shown in facsimile herewith. 

The settlements of the amounts of all orders are made 
between the banks concerned, the debtor banks giving to 
the creditor banks cashiers' checks, currency, or exchange 
for the amount of the trade, such checks always going 
through the exchanges on the following day. Suppose, 
for example, B's debtor balance is $75,000 to-day, and 
that this amount is settled by a trade with some creditor 
bank. B gives to the creditor bank a cashier's check for 
$75,000, which the latter will send through the exchanges 
to-morrow against B. Suppose also that in addition to 
the $75,000, B's debit balance goes on increasing each day. 



286 



Clearing-House Methods 







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287 



National Monetary Commission 

It is evident that in that case B must cease to postpone an 
actual settlement by trading and instead make a cash 
payment at the clearing house. 

This practice, it will be perceived, differs materially 
from that in vogue in Boston with respect to borrowing 
and loaning balances. In one case trades are made by 
the clerks; in the other they are restricted to one or 
another of the principal officials of the bank, who appears 
at the clearing house simply for that purpose. In the one 
case interest is required; in the other it is not. In the one 
case the checks on the debtor members go through the 
exchanges on the following day; in the other they do not 
so pass through at once, but may be held over indefinitely. 
In the one case the trading is solely an element of mutual 
convenience to members ; in the other case it is an element 
of gain to the creditor bank. 

Besides the regular members, there are about forty 
nonmember banks clearing through the Chicago clearing 
house. In other words, there is an average of two to each 
member. Most of those clearing in this way are private 
banks and trust companies. Since Illinois heads the list 
of States in number of institutions in this class, it is not 
surprising that the number in Chicago is so large, or that 
it should represent such a large fraction of the clearing- 
house business. Some comparisons may be interesting: 
In Boston the members exceed the nonmembers by about 
33 per cent; in Philadelphia there is at the present time 
but one nonmember bank, while in New York the list of 
members and nonmembers is nearly even, there being a 
few less nonmembers than members. 



288 



Clearing-House Methods 

Up to January, 1907, the Chicago clearing house exacted 
no compensation for permitting outside institutions to 
clear through its members, but about that time an amend- 
ment was added to the constitution making it imperative 
for a member bank to first obtain the consent of the 
clearing-house committee before it could clear for an outside 
institution, and further obligated such member to pay 
the association annually for each of such outside banks, 
as follows: 

For each bank having a capital of — 

More than $25,000 and less than $50,000 $150 

More than $50,000 and less than $200,000 250 

More than $200,000 and less than $400,000 350 

More than $400,000 and less than $600,000 450 

More than $600,000 and less than $1,000,000 600 

Exceeding $ i ,000,000 : 750 

The amendment further provided that such banks and 
bankers should, under proper authority, consent to the 
same examinations and render the same statements of 
their condition as are required of the members of the 
association, and be subject to all such rules and regula- 
tions in matters of common interest arising from or affect- 
ing relations with banks in other localities, and the foster- 
ing of sound and conservative methods of banking, as 
have been or may from time to time be adopted by the 
association, and sign an agreement so to do in such form 
as the clearing-house committee may require. 

Members of the association are required to furnish the 
manager statements of their condition, in accordance with 
the following rule: ''Each member of this association 
shall furnish the manager, as often as five times yearly, 
a sworn statement of its condition, at such times as may 
be designated by the Comptroller of the Currency for 

28Q 



National M on et ar y Commission 

statements from national banks; and at such other times 
and on such other dates as the clearing-house committee 
may require. Said statements shall be made in form and 
manner prescribed by the clearing-house committee. 
Said statements shall be open to the inspection of the 
members of this association, but otherwise shall be held 
strictly confidential." Many of the Chicago banks vol- 
untarily publish their statements, though no requirement 
of the kind is made by the clearing-house association. 
The daily clearings are the only regularly published 
statistics of the association. 

No items with restricted indorsements are allowed 
to go through the exchanges, the rule requiring that all 
checks and other paper for deposit shall be indorsed in 

blank, or simply "Pay to or order," without 

qualification. 

The expenses . of the Chicago clearing house are met 
by an annual assessment of $750 upon each of the mem- 
bers, and the payment of the balance after that amount 
pro rata, according to the daily average of exchanges 
sent to the clearing house for the months of October, 
November, and December immediately preceding. The 
fines upon the members are devoted to the payment of 
expenses. The total annual appropriation for this pur- 
pose for many years was in the neighborhood of $8,000, 
but the increase in expenses incident to the occupation of 
new quarters has made a considerably larger appropria- 
tion necessary. 

The fines enforced by the Chicago clearing house 
are unusually heavy: For failure to be represented punc- 



290 



Clearing-House Methods 

tually at the morning exchanges for the first five minutes, 
or part thereof, the fine is $3; for the second five minutes, 
or part thereof, $10; and for tardiness exceeding ten 
minutes, $25. So prompt, however, have been, the 
members that the $25 fine has never been imposed, and 
in only a few instances has the $10 fine been assessed. 

Banks desiring to become members make a formal 
application to the clearing-house committee. The latter 
thoroughly examines their condition and standing and 
makes a report to the association. The applicant then 
may be admitted on receiving the affirmative vote of 
three-fourths of the members of the association. The 
members are required to pay an admission fee of $1,000, 
and to assent to the articles of incorporation and by-laws, 
thus being put upon the same footing as the original 
members. The by-laws provide that no new members 
shall be admitted except banks having their principal 
office located in the city of Chicago, organized under the 
laws of the United States or under the laws of the State 
of Illinois, and having done business therein, with their 
subscribed capital stock fully paid in, for a period of at 
least six months prior to the application for membership. 
It is further provided that no new member shall be 
admitted except banks having a paid-in capital of at 
least $500,000, which capital shall be kept intact during 
the membership. The assistant treasurer of the United 
States located in Chicago may, upon application, be 
admitted to membership without the payment of an 
admission fee, but shall have no voice in the manage- 
ment. Any member may withdraw at pleasure, first 



291 



National Monetary Commissio 



n 



paying its due proportion of all expenses incurred and 
signifying its intention to the clearing-house committee 
to withdraw. 

In many clearing-house associations it is easier to 
expel members than to admit them, the vote being 
a majority for expulsion and three-fourths for admis- 
sion. At Chicago, however, the conditions of admission 
and expulsion are the same, the requirements in each 
case being a vote of three-fourths of all the members. 

In many of the most important cities of the country 
clearing-house loan certificates have been issued from 
time to time in seasons of great pressure — for example, 
as in the panics of 1873 ^^^ 1893 — thus giving elasticity 
to the currency in times of greatest need and affording 
relief to the banks from the terrific strain upon them. 
In Chicago, however, up to 1907, such action had never 
been taken, although in 1893 the subject was under 
serious consideration and a vote of 15 to 9 was cast in 
favor of an issue. At this time extensive loans were 
made to the members who were most in need, the loans 
amounting to $1,745,000. This represents the largest 
amount ever loaned in Chicago in this manner, and it 
was all repaid within sixty days from date. On other 
occasions banks that have been temporarily embarrassed, 
and which upon the careful examination by the clearing- 
house committee were found to be solvent and in pos- 
session of collateral sufficient to secure their loans, have 
been promptly assisted by their fellow-members in the 
clearing house, each furnishing aid in proportion to its 
capital and deposits. In 1907, however, the conditions 



292 



Clearing-House Methods 







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293 



National Monetary Commission 

were such that the issue of loan certificates seemed a 
desirable step to take, and they were accordingly put 
out under the resolutions, and in the amounts, described 
in a special chapter on the subject. 

The Chicago clearing house has experienced various 
changes in the number of its members. The member- 
ship at one time was as high as 30, and, as already stated, 
is at present only 20; yet the record of clearings shows 
an almost uninterrupted increase from the beginning of 
the organization. 

No losses have ever occurred from the enormous trans- 
actions which have been repeated from day to day 
during the thirty-two years of the history of the asso- 
ciation. These exchanges are conducted by two men — 
the manager and one assistant — and their record is em- 
bodied in four books. One contains simply the copy of 
the manager's proof sheet, showing the debit and credit 
exchanges and balances of each bank, and the total of 
the same for all the banks. Another book, the items in 
which are posted from the first, contains a record of the 
daily debits, credits, and balances of each bank, kept 
apart from a similar record of each of the other banks. 
The third book contains a transcript of the total clearings 
and balances by days, weeks, and months. The fourth 
book is a record of the amount and kind of money paid 
by and to the several banks in settlement of balances. 
From these records the total transactions of each bank 
with the clearing house for a given period may be readily 
ascertained. The annual transactions beginning with 
1865 have been computed and posted in this manner. 



294 



Clearing-House Methods 

In the rules of the Chicago clearing house due provi- 
sion is made for the administration of its affairs in all 
details. The several powers are lodged in a president, 
vice-president, manager, secretary, treasurer, and clearing- 
house committee. In addition, five directors are charged 
with the responsibility of attending to all matters per- 
taining to the corporate existence of the association, 
the Chicago clearing house being the only incorporated 
clearing house at present existing in America. 

The annual meeting is held on the third Tuesday in 
January, when the officers, directors, clearing-house 
committee, and manager of the clearing house are elected 
by ballot. A majority vote of a quorum determines 
the result, a quorum being a majority of all the asso- 
ciated banks. At this meeting each member of the 
association must be represented by one or more duly 
authorized persons, and is entitled to one vote. Besides 
the general meetings, the president is required to call 
special meetings whenever he may deem it necessary, or 
whenever he is so requested by five members of the 
association, or by the clearing-house committee. 

The president and vice-president are constituted the 
officers of the association and must be elected from among 
the officers of members of the association. Upon the 
president, and in his absence upon the vice-president, de- 
volves the duty of presiding at all meetings of the associa- 
tion and of calling the special meetings under the condi- 
tions named above. The manager has immediate charge 
of all the business of the clearing house, subject to the con- 
trol of the committee. He supervises and directs the 



295 



National Monetary Commission 

work of the clerks and messengers while in the clearing 
house, and, in addition, is ex officio secretary and treasurer 
of the association. As treasurer, he has charge of the 
funds belonging to the association and disburses the same 
on the order of the clearing-house committee. He is 
required to keep a correct record of all the money received 
and disbursed on account of the association, and to sub- 
mit a detailed statement of the same at the annual meet- 
ing and whenever requested by the clearing-house commit- 
tee. As secretary, he keeps the minutes of the proceedings 
of the association in a book provided for that purpose. 
His salary is fixed by the association and he is required to 
give a bond with sureties in a sum of not less than $20,000, 
to be approved by the clearing-house committee. He is 
required to report to the committee all violations of the 
charter or by-laws that may come to his notice. He 
holds office until the next annual election, but is liable to 
suspension by the clearing-house committee or expulsion 
by the association. 

The clearing-house committee consists of five members 
and is elected by majority vote by ballot at the annual 
meeting of the association. Upon this committee de- 
volves the chief responsibility for the successful conduct 
of the affairs of the association. It is its duty when occa- 
sion demands to procure a suitable room or rooms for the 
clearing house, with all necessary articles for the con- 
venient transaction of its business. The com^mittee ap- 
points the necessary clerks, establishes rules to be observed 
at the clearing house in cases not provided for in the con- 



296 



Clearing-House M e t h o d s 

stitution, but subject to the approval of the association, 
and has general supervision of clearing-house affairs. 

The clearing-house committee determines the assess- 
ment of each member for its quota of expenses, and orders 
the payment of bills by drawing on the treasurer for the 
same. The committee hears and determines all disputes 
arising between members of the association, when sub- 
mitted to it by the parties in dispute, thus performing a 
function sometimes discharged by a separate committee 
known as the " arbitration committee." A record of each 
case of dispute is kept in a book provided for that purpose, 
which book is kept at the clearing-house and is open to the 
inspection of all the members. The committee fills vacan- 
cies in the offices or other committees, and has power to 
suspend the manager or any clerk, and any member of 
the clearing house, whenever such action is deemed ad- 
visable. Finally, it is the duty of the committee, when- 
ever it may seem to be necessary, to examine any member 
of the association and establish a scale of fines for errors, 
disorderly conduct, or other irregularities of the repre- 
sentatives of the members. 



20040 — 10 20 297 



Chapter XIX. 
THE ST. LOUIS CLEARING HOUSE. 

EARI.Y HISTORY — SCOPE OP MEMBERSHIP — PI^AN OP AD- 
MINISTRATION — MANAGEMENT OP CI.EARINGS — RECORDS 
KEPT BY THE MANAGER. 

The members of the St. lyouis Clearing House Associ- 
ation have stood together with remarkable unanimity on 
the uniform rates of collection which were introduced on 
March i, 1895, and their success is justly attracting the 
attention of similar associations throughout the country. 

The St. Louis association was organized in 1868, in the 
midst of the period of reconstruction and when the country 
was slowly recovering from the blight of civil war. At 
the beginning there were 35 members, and in five years the 
list had grown to 41. This was in the troublous time of 
1873, when the institution of clearing-house loan certifi- 
cates first became general, and which has since proved 
invaluable in vSimilar crises. St. Louis joined the other 
leading associations at that time in the issue of these 
certificates, but to what extent it is not known, the records, 
unfortunately, having been lost in a fire. In subsequent 
periods of financial stringency, except in 1907, the asso- 
ciation has not found it necessary to resort to the issue 
of such certificates, although in 1893 some of the mem- 
bers were hard pressed and obtained relief through the 
association. The membership has greatly diminished 
since the date of organization, and, strange to say, is not 

298 



Clearing-House Methods 

half as great now as in 1873. Some failures have occurred, 
but the change has been due, in the main, to consohda- 
tion and to voluntary Uquidation. 

Originally the membership em.braced private banks, 
savings banks, and state and national banks, but now no 
private institutions are included. The present list com- 
prises 17 members, there being 9 state banks and trust 
companies, 6 national banks, and the German Savings 
Institution. Besides these, the post-office clears without 
the full power of members, and is assessed not in propor- 
tion to clearings, but for a definite amount, fixed at $40 a 
year. 

Banks may become members of the association by a 
two-thirds vote of all the members and by the payment 
of an admission fee of $1,000 in addition to the annual 
assessment for expenses; but, before applicants can be 
referred to the association for admission, their merits 
must be passed in review by the committee of manage- 
ment, and they must have a paid-up capital of not less 
than $500,000. Any member may be expelled by a 
three-fourths vote of the members for violation of any 
of the articles, by-laws, or rules of the association. lyike- 
wise, any member may be suspended by the committee 
of management, provided a majority at least of the com- 
mittee is present, and that the vote of those present is 
unanimous. It w^ill be noted that the vote for expulsion 
is greater than that required for admission. This is the 
reverse of the rule in most associations, for, ordinarily, it 
is easier to get rid of a member than it is to admit him to 
membership. 



299 



National M o n e t ar y Commission 

Besides the members, there are 35 outside institutions 
clearing through the association, 9 of which are trust 
companies, 16 are state banks, i is a savings bank, and 9 
are national banks. The members clearing for outside 
banks and trust companies are liable for their checks and 
certificates of deposit, the same as for their own; and 
''their liability continues until after the completion of the 
exchanges of the morning next following the receipt of 
notice of discontinuance of such agency." 

Section 3 of article i of the constitution provides as 
follows : 

The officers of the association shall consist of a president and vice- 
president, who shall be selected from among the members of the associa- 
tion, and elected by ballot at a stated meeting in January, annually, and 
shall hold their offices until their successors are chosen and qualified, but 
shall not be eligible for reelection for more than two consecutive years. 

Most clearing houses have embodied in their constitu- 
tions similar provisions, except that it is unusual to pro- 
vide that members shall not be eligible for reelection for 
more than two consecutive years. There are also elected 
at the same annual meeting a manager and committee of 
management, as opposed to the usual custom of appoint- 
ment of the manager by the clearing-house committee, 
and the election of the latter. In the hands of the com- 
mittee of management is placed the power to examine the 
books and accounts of any member of the association, 
whenever they may deem it necessary, and to employ ac- 
countants to aid in such examination. They are author- 
ized to suspend any bank from the privileges of the clear- 
ing house until the association has an opportunity to act 
upon it. 



300 



Clearing-House Methods 

The president or, in his absence, the vice-president 
presides at all meetings of the association. He is re- 
quired to call meetings of the same whenever, in his 
opinion, the interests of the association require it, or 
whenever requested to do so by the committee of man- 
agement or any three members of the association. The 
manager, in addition to the usual duties falling to his 
office, acts as secretary and treasurer of the association. 

Each member is required by the constitution to furnish 
the manager, for publication, "a sworn statement of its 
condition at such times as may be designated by the 
Comptroller of the Currency or the Secretary of State for 
statements from national or state banks, and at such 
times and dates as the clearing-house committee may re- 
quire. Such statements are made in the form and manner 
prescribed for statements from national and state banks, 
and are open to the inspection of members of the associa- 
tion." This provision applies with equal force to all 
banks not members of the association clearing through 
members, but not to trust companies enjoying such privi- 
leges. Such statements are now published in the daily 
press. 

The expense of printing is not borne equally by the 
members, but is apportioned in the same manner as the 
other expenses. Each bank pays $250 annually in ad- 
vance, and the expenses necessary after that amount are 
assessed quarterly upon the members according to the 
average daily amoimt of exchanges which each has sent 
to the clearing house during the preceding three months. 
Each nonmember clearing through a member pays $250 



301 



National M o n et ar y Commission 

a year in advance, the manager, in January, sending a 
draft for this amount through the clearing bank against 
said nonmember. 

The fines, which amount to from $250 to $850 a year, 
are collected from the banks by the manager and are paid 
by the offending clerks or by their banks, according to the 
nature of the offense. The total expenses of the associa- 
tion average about $25,000 a year. 

We have now to analyze the operations as they take 
place at the clearing house from day to day, and in this 
we shall find that St. Touis differs in some important de- 
tails from associations in the East. The clearing room is 
a beautiful, centrally located apartment, and sufficiently 
elevated to command a delightful view of the city. Out- 
side of New York, it is the most commodious and best- 
lighted clearing room in the United States, but it is not 
so artistically equipped as the clearing room at Pittsburg, 

On each business day the clerks appear at the clearing 
room at 10.30 o'clock, except on Saturdays, and then at 
9 o'clock, with their demands separately made out against 
each of the other banks, and with their items bound with 
a rubber band — not placed in envelopes, as is the case in 
most large cities. A facsimile of one of the lists used for 
the purpose is given in the illustration. Immediately 
upon his arrival each clerk delivers his items at the desks 
of the several members upon which they are drawn. The 
settling clerks sort, according to the number of the banks, 
the packages as they are deposited by the delivery clerks. 

In five minutes after the hour appointed for the ex- 
changes the settling clerks are in position, and at the tap 



302 



Debit List. 
St. Louis Clearing-House, 190 

ON 

3 Boatmen's Bank 3 

6 Central National Bank 6 

7 Commonwealth Trust Co 7 

11 Franklin Bank 11 

13 German American Bank 13 

14 German Savings Institution 14 

15 St. Louis Union Trust Co 15 

16 International Bank 16 

19 Merchants' -Laclede Nat. Bank 19 

21 Mercantile Trust Company 21 

22 Mississippi Valley Trust Co 22 

26 National Bank of Commerce 26 

27 South Side Bank 27 

28 State National Bank of St. Louis 28 

29 Third National Bank 29 

32 Mechanics American National Bank 32 

38 Post Office : 38 

Checks or other items cleared through a Member of this Association 
on a Bank or other Institution not a Member thereof shall be listed 
on and fastened to a separate slip, and the total footing of the slip 
entered as one item on the regular clearing slip. The clearing of such 
items loosely or in any other manner than herein provided is prohibited. 

Banks and Trust Companies. Clearing Through Members. 

Bremen Bank 13 German American Bank. 

Broadway Savings Trust Co 26 National Bank of Commerce. 

Cass Avenue Bank 29 Third National Bank. 

Chippewa Bank 26 National Bank of Commerce. 

City National Bank 32 Mechanics- American National Bank. 

Commercial Trust Co 32 Mechanics-American National Bank. 

East St. Louis, Illinois State Trust Co. 

Bank 29 Third National Bank. 

East St. Louis, Southern Illinois Na- 
tional Bank 32 Mechanics-American National Bank. 

East St. Louis, Union Trust and Savings 

Bank 29 Third National Bank. 

Farmers' & Merchants' Trust Co 32 Mechanics- American National Bank. 

Grand Avenue Bank 7 Commonwealth Trust Co. 

Granite City, First National Bank 26 National Bank of Commerce. 

Granite City.Granite City National Bank. 29 Third National Bank. 

Jefferson Bank 29 Third National Bank. 

Jefferson & Gravois Trust Co 26 National Bank of Commerce. 

Lafayette Bank 3 Boatmen's Bank. 

Lemay Ferry Bank 29 Third National Bank. 

Lowell Bank 32 Mechanics-American National Bank. 

Madison, Ills. First National Bank 26 National Bank of Commerce. 

Manchester Bank 29 Third National Bank. 

Mercantile National Bank 21 Mercantile Trust Co. 

Northwestern Savings Bank 29 Third National Bank. 

Savings Trust Co 29 Third National Bank, 

Scruggs, Vandervoort & Barney Bank. . . 3 Boatmen's Bank. 

Southern Commercial and Savings 

Bank 13 German American Bank. 

St. Louis County Bank 21 Mercantile Trust Co. 

Trust Company of St. Louis County 11 Franklin Bank. 

Union Station Bank 26 National Bank of Commerce. 

Vandeventer Trust Co 32 Mechanics- American National Bank. 

Washington National Bank 29 Third National Bank. 

Webster Groves— Bank of 26 National Bank of Commerce. 

Wellston— First National Bank 26 National Bank of Commerce. 

Wellston— State Bank 29 Third National Bank. 

West St. Louis Trust Co 16 International Bank. 

Broadway National Bank 29 Third National. 

Fac-simile of Debit List Used in St. Louis Clearing-House. 



303 



National Monetary Commission 

of the bell the distributing clerks proceed in line around 
the room, passing along the sheet containing a list of 
their exchanges, to be receipted for by the settling clerks. 
The credit and debit exchanges and the balances are listed 
by the manager in the usual way on his proof sheet. 
After striking the balance he calls off the credit and debit 
balances and they are listed by the clerks on sheets pre- 
pared in blank form for that purpose and taken back to 
their banks. The taking of such copies is optional with 
the members, it being intended for the information of any 
banks that may desire them. Hence the representatives 
of some of the smaller members do not remain to take 
them, but return to their banks immediately after the 
proof. 

One hour after the exchanges the creditor members 
return to receive their balances, whereupon the manager 
issues to them his certificates of indebtedness by the 
debtor members, payable on demand to said creditor 
members "without recourse upon any member of the 
association after 2 o'clock p. m. of the same day, except 
the debtor members named in such certificates, and ex- 
cept on half -holiday Saturdays, on which days the cer- 
tificates of indebtedness are issued without recourse upon 
any member of the association after 11 o'clock a. m. of 
the same day, except the debtor members named in such 
certificates." 

Usually the manager's certificates are cashed at the 
counter of the debtor bank upon presentation of the same 
by the creditor bank, but sometimes they are certified by 
the latter and sent through the exchanges against them 



304 



ST. LOUIS CLEARING HOUSE, 


Date 

Total CJearinos S 


190 




BALANCES. 


; 


Dr 




Banl^ No 




Cr. 










3 
Boatmen's, 














6 
Central National, 














1 
Commonwealth Tr. Co. 














it 
Franklin, 














1 13 

German American, 














14 
German Savings, 














15 
St. Louis Union Tr. Co, 














' 16 

International, 






-■ 








i ^^ 

1 Merchahts'-Laclede, 












21 
Mercantile Trust, 














22 
Mississippi Valley Tr. Co, 
























26 
, Nat'l Bank Commerce, 














27 
South Side, 














28 
State Nat. Bank, 














29 
Third National, 














32 
Mechanics' Am. Nat'i, 














38 
Post Office, 














TOTAL, 























FoBM Used. FOB Listing Balakces in St. Louib Ci-EAajM^;-HoutjE. 



305 



National Monetary Commission 

on the following day. Some banks, however, refuse to 
certify, but give a cashier's check to a creditor member 
in exchange for a manager's check held against them, and 
the former is sent through the exchanges on the follow- 
ing day. Manifestly there is no occasion for the appear- 
ance of the debtor memibers at the clearing house in the 
settlement of balances. Immediately, however, after issu- 
ing his checks to creditor members the manager fills out a 
blank giving the clearings and balances, as shown in the 
illustration, and deHvers the same to the debtor bank. 

In this way the memiber banks know whether the 
amount of their balance, as reported to them by the clerk 
on his return from the exchanges, proves with that listed 
by the manager, and also what banks hold the manager's 
certificates of indebtedness upon them and in what amount. 
If the total of the manager's checks issued against them 
agrees with the amount of their balance, they know that to 
be correct the manager's checks presented at their coun- 
ter by the creditor members must agree with the amounts 
of the same as listed on the card by the manager. This 
custom of delivering cards is practically unknown to other 
associations. 

The by-laws define proper matter for clearing as 
follows : 

1. All checks or drafts upon or certificates of deposit, 
demand or matured, of any member of the clearing house 
or any bank or trust company clearing through any 
member. 

2. Any other matter specially agreed to by any mem- 
ber or any bank or trust company clearing through it 
until notice is given to the contrary. 

306 



Clearing-House Methods 



ST. LOUIS CLEARING HOUSE. 

lOOI 








Clearings, , , - 5f» 






Ralfinc*^. t t t t $ 






Mo. 






Pfthit, ... jf; 


.Checks Favor. 

Nft. $ 






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« 






(( 




• 


(( 






{{ 













FoBM OF Managjsr's Report Of Clbasings, Balances, Etc. 



307 



National Monetary Commission 

3. Mercantile or other paper payable at any bank or 
trust company when such clearance shall have been author- 
ized by the said bank or trust company, but not otherwise. 
All unstamped and illegibly stamped items shall be con- 
sidered improper matter for clearing. Express money 
orders, railroad and other pay checks are not, by the 
rules of the association, proper matter for clearing, but 
their clearing is allowed by consent of the banks at which 
they are payable, and only on conditions prescribed by 
such banks. Such orders and pay checks " must be listed 
on separate slips, fastened together firmly with the slips, 
and the full amount of them entered as one check upon 
the regular clearing slip." For violation of this rule 
any member is liable to a fine of $2 for clearing improper 
matter. 

The manager keeps the following records of transactions : 

1 . A record of daily clearings and balances of each mem- 
ber. The same, by addition, is found for weeks, months, 
or years. 

2. The clearings register showing the daily clearings, 
debits, and credits of each member. 

3. A record of total credit clearings of each member 
by months. 

4. A record of the clearings, debit and credit, by months 
for each member, a total of the same being made at the end 
of the year. 

5. A monthly and annual total of the clearings of all 
the members. 

6. A condensed record of the published bank state- 
ments. 



308 



Clearing-House Methods 

Although, as we have seen, there has been a great de- 
crease in the membership from the original number, the 
volume of exchanges has gone on increasing, and the asso- 
ciation now takes fifth rank among the clearing houses of 
the country. 

Thus we have reviewed the methods and manner of 
administration of our five largest clearing houses, and 
with a few minor exceptions, designed generally to meet 
some local condition, the conduct of the other clearing 
houses of the country is along very similar lines. 



309 



INDEX. 



"Acceptable matter" for clearing, 8, 49-51, 58. 

at New York, 210-21 1, 

at St. Louis, 306, 308. 
Administration of clearing house, 30-35. 

at Boston, 257-258 

at Chicago, 295-297. 

at New York, 159-163. 

at Philadelphia, 234-236. 

at St. Louis, 300-301. 
Admission to membership. (See Membership.) 
Admission charges, at New York, 165. 
Admissions, committee on, 33, 34. 

at New York, 162, 165. 
Advertising, clearing house, 22. 

Agreement, New York clearing house, regarding outside collections, form 
of, 187. 

Ohio Bankers' Association, No. 2, for mutual protection in panic, 

131-135- 
Altoona, Pa., reports on financial integrity at, 21-22. 
Application to clear for another bank, New York clearing house, form of, 

173- 
Arbitration committee, 34. 

at New York, 163. 

at Philadelphia, 235. 

functions of, discharged by clearing-house committee at Chicago, 297. 
Arithmometer, use of, in foreign department of Boston clearing house, 271. 
Assessment, at Boston, for printing and on nonmembers, 256. 

at Chicago, for expenses, 290. 

at New York, 21 1-2 13. 
Assets, need of elasticity in, of banks, 27. 

unavailable, cash settlements to counteract maintenance of, 27-28. 
Atlanta, Ga., clearing-house loan certificates issued at, 1893, 107, 109. 

clearing-house loan certificates, 1893, form of, 108. 
use of in general circulation, 109. 

plan for clearing country checks, 62-63. 
Austin, Tex., settlement of balances at, by option of cash or draft, 45. 
Authorization. {See Resolutions.) 



3" 



National Monetary Commission 

Average condition, weekly statement of, form of, at Boston clearing house, 
for associated banks, to face 252. 

at New York clearing house, for associated banks, 183. 

for nonmember banks. No. 2, to face 184. 
at Philadelphia clearing house, for banks and trust companies, to face 
230. 
Average daily clearings, at New York for fifty-five years, table, 217 

at New York in 1906, 220. 
Averages, weekly statement, form of, at Boston, used by associated banks, 

253- 

at New York, used by associated banks, 184. 
by nonmembers, 175. 
by trust companies, 176. 

at Philadelphia, by banks, 228. 
Balance, definition of, 7, 36. 
Balances, borrowing and loaning of, at Boston, 247-252. 

borrowing and loaning of, at Boston, form used in transfer, 250. 

See also Balances, trading of. 

debit, manager's receipt for, at Boston, form, 248. 

ticket used in connection with payment of, at Boston, form, 246. 

listing, in St. Louis clearing house, form used in, 305. 

method for determining at New York, 55. 

paid in cash at New York for fifty-five years, 221. 

ratio of, to clearings, at New York, 220-221. 

settlement of. {See Settlement of balances.) 

striking instances of large and small amounts of. New York, 222. 

trading of, at Chicago, 284-288. 

orders used in transfer, 287, 293. 
report used in transfer, 283. 
Baltimore, clearing-house loan certificates, issued at, 1873, 83, 89. 

clearing-house loan certificates issued at, in 1893, 100. 

minimum rates of exchange established at, 16. 

settlement of exchanges in money at, 38. 

settling clerks' methods at, 52. 
Bank Clerks' Beneficial Association, clearing-house fines at Philadelphia 

donated to, 233. 
"Bank draft," or "banker's draft," definition, 6. 
Bank examiners, clearing house, 137-147. 
Bank, national. {See National bank.) 

Bank of America, depository for New York clearing-house, 204. 
Bank of the Union, expulsion of, from the New York clearing house, 164. 
Banks, associated, of Boston, statement of weekly averages of, form, to face 

252. See also Boston clearing house. 
Bay City, Mich., alternation of clearing bank at, 48. 
"Bill," definition, 5. 



312 



Clearing-House Methods 

" Bill of exchange," definition, 5. 

Binghamton, N. Y., settlements at, by drafts on another city, 45. 

Birmingham, Ala., clearing-house loan certificates issued at, 1893, 109-110. 

clearing-house loan certificates at, 1893, form, iii. 
Bond, given by clearing-house manager at Philadelphia, 236. 
Bookkeeping, Boston clearing house, foreign department, 271-273. 
calculating interest on loan certificates, 113-115. 
Chicago clearing house, 279-280, 294. 
"debits of exchange," and treatment of checks, 65. 
Borrowing and loaning of balances, at Boston, 44, 247-252. 
at Chicago, 44, 284-288. 
at Pittsburg, 44. 

comparison of methods of, at Boston and Chicago, 288. 
Borrowing, information concerning, secured by clearing-house bank exam- 
iners, 144. 
Boston clearing house, 240-274. 
administration, 257 

borrowing and loaning of balances, 247-252, 288. 
clearing-house loan certificates, of 1861, 242-243. 
of 1873, 83, 86, 243. 
of 1890, 92, 93, 243. 
of 1893, 98-100, 243. 
of 1893, form of, 97. 
of 1895, 112, 243. 
of 1907, 123-124. 

of 1907, method of calculating interest on, 114-115. 
foreign slip and check ticket, form, 266. 

described, 269. 
foreign department, exchange ticket, form, 270. 
letter of transmission, form of, 272. 
receipt, form of, 268. 
receipt for pro rata charge on account of uncollected checks, 

form, 264. 
routine of clearing out-of-town items, 263, 265. 
settling sheet, form, 275. 
volume of business, 274. 
receipt, manager's, for debit balances, form, 248. 
national loan and, 243. 

outside banks and trust companies, rules, concerning, 254. 
routine, 243-245, 263. 
settling balances, method of, 44, 244. 

foreign, 263-265. 
ticket used with payment of debit balances, form, 246. 
weekly statement of averages by, form, to face 252. 
weekly statement to clearing house, by associated banks, form, 253. 

20040 — 10 21 313 



National M o n et ar y Commission 



Buffalo clearing house, decorative scheme of room of, 48. 

clearing-house loan certificates, of 1893, 105. 

method of calculating interest on, 115. 

kinds of money acceptable in making settlements, 38. 

ratio of balances to clearings, 37. 

receipt, given by creditor banks on receipt of balances, form, 40. 
given to debtor banks on payment of balances, form, 42. 

uniform rates of exchange fixed at, 15. 
Building company, New York clearing house, 157-158. 
Building fund. New York clearing house, 156-157. 

Burroughs' s arithmometer, in foreign department, Boston clearing house, 271. 
California, contemplated plan of clearing-house bank examiners, 146-147. 
Camp, William A., manager of New York clearing house, 160. 
Canada, settlements in government legal-tender notes, 38. 
Canadian currency, uniform discount agreed on at Seattle, 23. 
Canton, Ohio, clearing-house check, form, 1907, 126. 

paychecks used at, 1907, 125. 
Cash balances paid in at New York clearing house for fifty-five years, 221. 
Cash settlements, recommended, 27, 28. 
Center, financial, defined, 6. 
Central agency, need of, to disseminate information regarding outstanding 

paper, 25. 
Centralization of banking, clearing houses a means to, 24. 
Certificates, building, of New York clearing house, 157-158. 

clearing house. {See Clearing-house certificates.) 

four kinds, 43. 

gold. {See Gold certificates.) 

issued by Treasurer of United States for- clearing-house purposes, at 
Philadelphia, 227. 

manager's, at St. Louis, 304-306. 

of indebtedness at St. Louis, 304, 306. 

participating. New York, 1907, 118. 
Chairman of Clearing House Association, Boston, 257. 

Charge ticket, Boston clearing house, foreign department, how used, 265. 
Charleston, settlement optional by cable or draft at, 45. 
Chattanooga, advertising through clearing house at, 22. 

clearing-house loan certificates, 1893, 112. 

hour of exchanges, 49. 
Chester, Pa., reports on fraud required at, 22. 
Check, definition, 6. 

back of, showing indorsements after typical journey, 73. 

clearing house. {See Clearing-house check.) 

country, argument for charge for collection of, 74. 
collection of, 59-63. 
collection, typical procedure showing need of reform in, 64-74. 



314 



Clearing-House Methods 



Check — Continued. 

country — continued. 

difficulties of handling, 59, 60. 

plans for clearing of, 60, 61. 

typical journey of a, 64-74. 

uniform rates for collection of, 60. 
employer's pay. {See Pay checks.) 
face of, after typical journey, 69. 
itinerary of, shown by map, 71. 
"local," definition, 9. 
manager's. {See Manager's check.) 
methods of transport to clearing house, 52. 

Ohio Bankers' Association No. 2, agreement relating to, 133-134. 
Check ticket and foreign slip, Boston clearing house, form, 266. 
Chicago clearing house, 276-297. 

clearing-house bank examiners at, 138-140. 
clearing-house check, form, 120. 
clearing-house loan certificates, 1907, 1 21-124. 
fines for tardiness at exchanges, 53. 
settling balances, method of, 44. 
order on manager for balance due, form, 293. 
ratio on balances to clearings, 37. 
trading balances at, 284-288. 

reports used in, form, 283. 
transferring balance at, form of order, 287. 
Cincinnati clearing house, clearing-house checks of, 1907, 127. 
clearing-house loan certificates, 1873, 83, 89-90; 1893, 105. 

form of, 1893, 104. 
errors in exchanges, method of preventing at, 54. 

no fine if reported immediately, 56. 
settling, time of, at, 43. 

exceptional rule for, 52. 
Circulating certificates, or "scrip," use of, at Los Angeles, 1907, 129-130. 
Civil war, clearing houses in, 12. 
Boston clearing house in, 242. 
effect on clearings at New York, 218. 
"Clearance," definition, 5. 
"Clearing," definition, 4-5. 

Clearing, for nonmembers. {See Nonmembers, regulations concerning.) , 
by telephone, at South Bend, Ind., 53. 
hours, at various clearing houses, 49. 

two, of Boston foreign department, 263. 
improper matter for, 51, 59. 
matter, 8, 49-51,58, 59. 

at New York, 2 10-2 11, 

at St. Louis, 306, 308. 

315 



National Monetary Commission 



Clearing — Continued. 

room, at New York, 190. 
at St. Louis, 302. 
Clearing house, definition, 4, 11. 
Clearing-house association, annual meeting, and representation in, 35, 

See also Administration and under names of cities. 
Clearing-house associations of California, plan for cooperation of, 146-147. 
Clearing-house bank examiners, 137-147. 

Chicago, 138-140. 

Kansas City, 144. 

Los Angeles, 144. 

Minneapolis, 140-14 1. 

New York, opposition to, 147. 

Philadelphia, 145. 

St. Louis, 141-143. 

St. Paul, 141. 

San Francisco, 144. 
Clearing house, building of New York, 213. 
Clearing House Building Company, New York, 213. 
Clearing-house certificates, circulating or "scrip," 1 29-131. 

gold coin and legal tender, suggested by Gallatin, 152. 

gold, New York, form of, face, 206, 
New York, form of, back, 207. 
Philadelphia, 225. 

kinds of, 75, 204. 

negotiable at Boston, 254. 

used in liquidation of balances, New York, 202, 204. 
Clearing-house check. Canton, Ohio, 1907, 125, 127. 

Canton, Ohio, form, 126. 

Chicago, 1907, 1 21-123. 
form of, 120. 

Cincinnati, 1907, 127. ^ 

Cleveland, 1907, 127, 129. 
Clearing-house circulation certificates, 1 29-131. 
Clearing-house committee. ^See Committee, clearing-house.) 
Clearing-house due bills, at Philadelphia, 226, 227-229. 
Clearing-house gold certificates. {See Clearing-house certificates, gold.) 
Clearing-house loan certificates, 75-136. 

circulation of, not currency, 76. 

not used as money, except in South, 116. 

criticism of, met, 115-116. 

definition of, 75-76. 

effect of borrowing balances on, at Boston, 251-252. 

emergency circulation under this title in Southeast, 112. 



316 



Clearing-House Methods 

Clearing-house loan certificates — Continued, 
how used, best illustrated in East, ii. 

as protection in panic, 21, 45. 

in saving use of cash, 77. 

beneficial effects of first issue of, 81. 
interest on, method of calculating, 11 3-1 15, 

rates of, 78. 

rates of, on issues of 1 860-1 864, 81-83. 

rate of, at New York in 1873, 85. 

rate of, at New York, 1884, 90. 
Clearing-house loan certificates, issues, of 1860-1896, 80-113. 
of 1907, 1 17-137. 
Atlanta, 108. 
Baltimore, of 1873, 83, 89. 

form of, 99. 
Birmingham, Ala., iii. 
Boston, of 1873, 83, 243. 

of 1890, 92, 93, 94, 98. 

of 1893, form of, 97. 

of 1895, 112. 

of 1907, 123-124. 

of various dates, 243. 
Chicago, of 1907, 1 21-123, 292. 
Cincinnati, of 1873, 83, 89, 90. 

of 1893, form of, 104. 
Cleveland, of 1907, 127-129. 
Detroit, form of, 106. 
Fargo, N. Dak., of 1907, 129. 

form of, 128. 
Los Angeles, of 1907, 129. 
Louisville, of 189 1, 95. 
New Orleans, of 1873, 83, 89. 

form of, 102. 

of 1879, 90. 
of 1893, 100. 
New York, of i860, 80, 81. 

of 1861, 1863, 1864, 82, 83. 

of 1873, 83. 

of 1873, form of, 84. 

of 1884, 90. 

of 1890, 91, 92. 

of 1 89 1, 92. 

of 1893, 98. 

of 1907, 117-121. 



317 



National Monetary Commission 



Clearing-house loan certificates — Continued. 
New York — Continued. 

aggregate amount of since i860, 121. 
amount of used in settling balances in 1908, 208. 
attitude of members toward, 79. 
Oklahoma, of 1907, 131. 
Philadelphia, of 1873, 83, 86. 
of 1873, form of, 87. 
of 1890, 94. 
of 1893, 100, 
of 1907, 124-125. 
St. Louis, of 1873, 83, 89. 
of various dates, 298. 
redemption of, 78. 

in 1873, collaterals for, 85. 
smallest denominations issued, no. 
Clearing-house loan committee. {See Committee, loan.) 
Clearing-house note depository certificates, proportion of used in settling 

balances at New York, 208. 
Clearings at New York, amount of first, 154. 
at New York, average daily, 220. 
for fifty -five years, 217. 
volume of, 217, 222. 
ratio of balances to, 220, 221. 
two a day, 50, 57. 
Cleveland, loan certificates and clearing-house checks issued at, 1907, 127. 
Coin certificates, 45. 

Coin, use of in settling balances at Boston, 244. 
Collateral, amount deposited to secure loans in panic of 1907, 135. 
Collecting. {See Collection.) 
Collection, definition, 7. 
charges, 15-20. 

See also Collection of items, 
cost of, Boston foreign department, 274. 
inclosure sheet, use of, 65 . 
items, definition, 8. 
of checks, routine of handling, 64-74. 
of items, regulation of, 15-20, 25, 179, 185-187. 
uniform rates of, at St. Louis, 298. 
Collections, country or outside, Boston, 261-262. 
Kansas City, plan for, 61, 62. 
New York, 179, 185-187. 
Committee, 

arbitration, 33, 34. 

at Philadelphia, 235. 
at New York, 163. 

318 



Clearing-House Methods 

Committee — Continued. 

clearing house, 30, 32-33. 
at Boston, 257, 258. 
at Chicago, 140, 296-297. 
at New York, 161-162, 169. 
at Philadelphia, 234-235. 

reports of clearing-house bank examiners to, at Chicago, 140. 
conference, 2>2>, 34- 

at New York, 162. 
exchange, 34-35. 
executive, 30, 32. 
loan, 33, 78. 

at Detroit, 107. 
at New Orleans, loi. 
at New York, 118, 161. 
nominating, 33, 34. 
at Boston, 257. 
at New York, 163. 
of management, 30, 32. 

at St. Louis, 300. 
on admissions, 33, 34. 

at New York, 162, 165. 
Committees, 32-35. 
Conference committee, duties and election of, 33, 34. 

at New York, 162, 
Consent to clear for another bank, form of, 174. 
Constitution of New York clearing house, drafting of, 154-155. 

provisions of, 159-179. 
Cost of collecting, Boston clearing house, foreign department, 261-262. 
Creditor banks, receipt given by, at Buffalo on receipt of balances, form, 40. 
"Credit ticket," of New York clearing house, 194. 
Country collections. {See Collections.) 
Courts, Pennsylvania, decision, that loan certificates are not money, 116. 

decree in Keystone National Bank case, 238. 
Currency certificates, 43, 44. 

Boston clearing house, 28-29. 
New York clearing house, 28-29. 
Currency, depositories for, 28. 
shipped by express, 25. 
system, defects of, cause of panic of 1907, 117. 

clearing-house loan certificates as a remedy for, 77. 
use of, in settlements at Chicago, 282. 
Curtis, George, drafting of constitution of New York clearing house by, 155. 
proposes committee on arbitration at New York, 161. 
amendment concerning nonmembers, 167. 



319 



National Monetary Commission 



Daily clearings, average at New York for fifty-five years, 217. 

at New York in 1906, 220. 
Danville, 111., settlement of balances direct between banks, 43. 
Dayton, Ohio, cashing manager's checks at, 43. 

Debit balances, form of ticket used in connection with payment of, at 
Boston, 246. 

list used in St. Louis clearing house, 303. 
"Debits of exchange," 65. 
Debtor banks, form of receipt given to on payment of balances at Buffalo, 

42, 
Defaulting members, at New York, action regarding, 208, 209. 

at Philadelphia, rule concerning use of collateral security of, 232. 

Ohio Bankers' Association No. 2, treatment of, 133. 
Delivery clerk, duties of, at New York, 191, 195. 
"Delivery clerk's receipts," 192. 

Depository, coin, for clearing house indicated in Gallatin's "cash house," 
152. 

of Boston clearing house, 254. 
Depository certificates, 44, 45. 

Deposits, of city customers, clearing-house rules concerning limitations, 20 
Deposit ticket, Boston clearing house, foreign department, form, 266. 
Des Moines, Iowa, express money orders cleared at, 50. 
Detroit, appointment of loan committee, 1893, 107. 

clearing-house loan certificates used at, 106. 

two clearings a day at, 56, 57. 
Draft, defined, 6. 
Drafts, use of, in United States extensive, 58. 

use of, by smaller clearing houses foreshadowed by Gallatin, 153, 
growing, 58. 
Due bills, clearing-house, employed at Philadelphia, 227-229. 

form of, used at Philadelphia, 226. 

in Keystone National Bank failure, 237. 

loan certificates regarded as, 116. 
Edmunds, F. W., devised coin certificates, 45. 

Empire City Bank, expulsion of, from New York clearing house, 164. 
Employers' pay checks, use of, in Philadelphia panic of 1907, 124-125. 
Errors, adjustment of, at New York, 209. 

Cincinnati method to prevent, in exchanges, 54. 

fines for, at New York, 215-216. 

in exchanges, checking of, at New York, 200. 

reclamations for, at Boston, 245. 
at New York, 210. 
Examination of banks by Boston clearing-house committee, 255. 
Examiners, clearing-house bank, 26, 137-147. 



320 



Clearing-House Methods 

Exchange, charges for sale of, 20. 

definition of, 5. 

of drafts, daily at London, Gallatin on, 151. 

of items, results of, 36. 

premium on, at St. Joseph, 20. 
Exchange committee, 34-35. 
Exchanges, before clearing, at Chicago, 281. 

hour of making, 48. ^ 

method of making, 48-49, 53, 54. 
at Chicago, 278-280, 281. 

at New York, prior to establishment of clearing house, 148-150. 
at New York, 190-202. 
at Philadelphia, 224. 
at St. Louis, 302-304. 

time taken to make, 55. 

volume of at New York, 217-222. 

See also Clearing, and Settlement of balances. 
Exchange slip, at New York, form of, 193. 

use of, 191, 195. 
Exchange ticket, Boston foreign department, 270. 
" Executive committee," 30, 32. 
Expenses, at Boston, for printing, 256. 

at Chicago, how met, 290. 

at New York, 211-212, 213. 

at Philadelphia, apportionment of, for printing, 233, 

at St. Louis, 301-302. 
Express money orders cleared in Des Moines, 50. 
Expulsion, at Boston, rules concerning, 256. 

at Chicago, rules concerning, 292. 

at New York, 164, 166. 

at St. Louis, 299. 
Failure, action of Boston clearing house in cases of, 255-256. 

provision for protection against, by Ohio Bankers' Association No. 2, 

133- 
Failures, in history of Philadelphia clearing house, 236. 

of Marine Bank and Wall Street Bank in 1884, effect on clearing house 

at New York, 219. 
result of, in regulations for nonmembers at New York clearing house, 

168-169. 
treatment of, by Chicago clearing house, 277, 278. 
use of clearing-house bank examiners to prevent, 137. 
Fall River, Mass., draft, 45. 

two clearings a day, method described, 56. 
Fargo, N. Dak., items for outsiders cleared at, 50. 
clearing-house loan certificates at, form, 128. 
in 1907, 129. 

321 



National Monetary Commission 

Farmers and Mechanics' National Bank, depository for Philadelphia clear- 
ing house, 225. 
Financial depression of 1890, forces leading to, 91. 

stringency. {See Panic.) 
Fines, abuse of loan certificates restricted by, 116. 
for failure of bank to meet its requirements, 38. 
lateness at clearing, amounts of, 53. 

mistakes, 55. 
in Boston clearing house, foreign department of, 267. 
in Chicago, 290, 297. 
for errors, 280. 

for violation of regulations, 284. 
in Cincinnati, none for mistakes if reported at once, 56. 
in New York, 198, 214, 215, 216. 

collected from 1885 to 1908, 214. 
for transferring loan certificates to nonmembers, 204. 
in Philadelphia, 233. 
in St. Louis, 302. 

for clearing improper matter, 308. 
"'First ticket," at New York, 191. 

form of, 194. 
Foreign department of Boston clearing house, 259-275. 

See also Boston, foreign department. 
Foreign slip and check ticket, Boston clearing house, form, 266. 

description, 269. 
Forfeiture of privileges at St. Joseph, Mo., 19. 
Forgan, J. B., on clearing-house bank examiners, 138. 
Forms : 

agreement to comply with rules regarding outside collections. New 

York, 187. 
application to New York clearing house to clear for another bank, 173. 
check, after typical journey, back, showing indorsements, 73. 
after typical journey, face, 69. 

issued by group 2, Ohio Bankers' Association, 130. 
clearinghouse. Canton, Ohio, 126. 
clearing house, Chicago, 1 20. 
clearing-house loan certificates, Atlanta, 108. 
Baltimore, 99. 
Birmingham, Ala., iii 
Boston, 97. 
Cincinnati, 104. 
Detroit, 106. 
Fargo, N. Dak., 128. 
New Orleans, 102. 
New York, 84. 
Philadelphia, 87. 

322 



Clearing-House Methods 

Forms — Continued . 

consent of New York clearing house to clear for another bank, 174. 

debit list, St. Louis, 303. 

due bills, Philadelphia, 226. 

exchange slip, New York, 193. 

exchange ticket, Boston, foreign department, 270. 

foreign slip and check ticket, Boston, 266. 

gold certificate. New York, back, 207. 

face, 206. 
letter of transmission, Boston, foreign department, 272. 
listing balances, form used in, at St. Louis, 305, 

National bank statements, form used in tabulating at New York, 181. 
order used in transferring balances that have been loaned, Chicago, 287. 

on Chicago clearing-house manager for balances due, 293. 
proof sheet. New York, 201. 
receipt, given by foreign department, Boston, 268. 

given for pro rata charge on account of uncollected checks, Boston 
foreign department, 264. 

given by creditor banks on receipt of balances, Buffalo, 40. 

given to debtor banks, on payment of balances, Buffalo, 42. 

manager's, for debit balances, Boston, 248. 

manager's, New York, 205. 

settling clerk's. New York, 196. 
report, manager's, of clearings, balances, etc., St. Louis, 307. 

settling clerk's, of daily balances. New York, 203. 

used in trading balances, Chicago, 283. 
resolution authorizing exchanges through a member bank. New York, 

172. 
settling sheet, Boston foreign department, 275. 
settling clerk's statement, New York, 197. 

State bank statements, form used in tabulating, at New York, 182. 
statement required of trust companies. New York, 180. 
statement, required of trust companies by New York Clearing House 

Association, 180. 
statement, daily, by banks of Philadelphia, 230. 

statement, weekly, of average condition, Boston, of the associated 
banks, to face 252, 

New York, of the associated banks, 183. 

New York, of nonmember banks, to face 184, No. 2. 

New York, summary of, to face 184, No. i. 

Philadelphia, of banks and trust companies, to face 230. 

of averages, Boston, used by associated banks, 253. 

New York, required of associated banks, 184. 

New York, required 'of nonmember banks, 175. 

New York, required of trust companies, 176. 

Philadelphia, required of banks, 228. 

323 



National Monetary C ommis s io 



n 



Forms — Continued. 

ticket, first or credit, New York, 194. 
second. New York, 199. 
small, New York, 193. 

used in connection with payment of debit balances, Boston, 246. 
Fort Wayne, Ind., advertisements, 22. 

cashing manager's checks at, 43. 
Fourth National Bank, failure of, in Philadelphia, 236. 
Fraud, cooperation to prevent, 22. 

Frederick, Md., option of cash or draft in settlements at, 45. 
Fremont, Ohio, draft, 45. 

Furniture, arrangement of, in clearing house, 47. 
Gallatin, Albert, suggestion for clearing house, 151-153. 
Gibbons, J. S., on early exchange methods in New York, 149-150. 
Gilpin, William J., manager New York clearing house, 160. 
Gold certificates, clearing house, on subtreasuries, recommendation for en- 
largement of, restriction of, 26. 

clearing house, at New York, 202, 204. 
form of, face 206. 
form of, back 207. 
settling balances with, 202, 208. 
United States, used in settling balances in New York, 202, 208. 
Gold coin and notes, fund of, at Boston, 254. 

handling of, in settling balances at Boston, 244. 
method of handling, at Chicago, 282, 
packages of, rules concerning, at Milwaukee, 39. 
used in settlements at New York, 202, 
depository certificates, 45. 
Hamilton, Canada, money acceptable in clearing house at, 38. 
Hartford, Conn., draft, 45. 

Hastings, Nebr., banks alternate weekly as clearing house, 48. 
History of clearing houses in United States. {See under names of cities.) 
Holyoke, Mass., draft, 45. 
Houston, Tex., regulation of rates of exchange by clearing-house association 

of, 16, 17. 
Inclosure sheet, collection, use of, 65. 

Indorsements, facsimile of, on check after typical journey, 73. 
requirements for, 51. 
restricted, 51. 

at Chicago, 290. 
at New York, 211. 
Insolvency, action in case of, of members at New York, 209. 
Interest, method of calculating on clearing-house certificates, 11 3-1 15. 
rates of. {See Rates of interest.) 



324 



Clearing-House Methods 



"Item," definition of, 8. 

Items, included in statements at Boston and New York, difference in, 255. 

number reported at New York and Philadelphia, 231. 
Itinerary of a check on a typical journey, 70-72. 
Jacksonville, Fla., option of cash or draft in settlements at, 45. 

cashing manager's check at, 43. 
Jacksonville, 111., banks alternate monthly as clearing house, 48. 
Kansas City, Mo., option of cash or draft in settlement at, 45. 

cashing manager's checks at, 43. 

plan for clearing country checks, 61, 62. 

system of clearing-house bank examiners at, 144. 
Keystone National Bank and loan certificates in 1890, 94. 

failure of and litigation of clearing house at Philadelphia over, 236-239. 
Law, New York State banking, as affecting relation of trust companies to 

clearing house, 177-178. 
Ledger, progressive, use of, in Boston foreign department, 273. 
Legal tenders, clearing house, used in settling balances at New York, 208. 

United States, used in settling balances at New York, 208. 
Letter of transmittal, form of, of foreign department of Boston clearing 

house, 272. 
Liability, for manager's check, 43. 
Liquidation of balances, action on, by Boston clearing house in 1857, 242. 

use of clearing-house certificates in, at New York, 204. 
Listing balances, form used at St. Louis clearing house, 305. 
Loan certificates. {See Clearing-house loan certificates.) 
Loaning and borrowing of balances. {See Borrowing and loaning of 

balances.) 
Loan committee. (See Committee, loan.) 

Loans, clearing-house bank examiners' reports on, at Chicago, 139. 
** Local check," definition, 9. 

London, system of exchange of, referred to by Gallatin, 151. 
Los Angeles, clearing-house bank examiners at, 144. 

issue of loan certificates and circulating certificates at, 1907, 129-131, 

gold acceptable in settlement, 38. 

two clearings a day at, 56, 57. 
Loss, provision in case of, at Boston, in issuing loan certificates in 1907, 
123-124. 

provisions against, by New Orleans banks, 103. 
Losses, absence of, at Chicago, 294. 

usefulness of clearing-house bank examiners in providing for, 138. 
Louisville, Ky , fine for mistakes, 56. • 

loan certificates, issue of, 1891, 95. 

method of calculating interest on loan certificates at, 1 1 5 . 



325 



National Monetary Commission 



Lowell, Mass., bank to act as clearing house chosen at annual meeting, 48. 

draft, 45. 
Lyman, George D., manager of New York clearing house, 160. 
Manager of clearing house, 31. 

at Boston, 258. 

foreign department, 260. 

at Chicago, 295-296. 

at New York, 160. 

at Philadelphia, 236. 

at St. Louis, 300, 301. 
Manager's check, liability for, 43. 

settlement by, 43-44. 

at Philadelphia, 229. 
Manager's certificates, at St. Louis, 304-306. 
Manufacturing concerns, compelled payment of loans, 27. 
Massachusetts and foreign department of Boston clearing house, 259. 
Matter for clearing, 8, 49-51, 58, 59. 

at New York, 2 10-2 11. 

at St. Louis, 306-308. 
Meetings of clearing-house association, annual, at Boston, 257. 

at Chicago, 295. 

at New York, 159. 
Membership, clearing-house association, Boston, 256. 

Chicago, 276-277, 291. 

changes in size of, 294. 

New York, 163-166. 

table of 1 854-1 908, 217. 

Philadelphia, 234. 

St. Louis, 299. 
Middle States, rate of collection in, 18. 
Milwaukee, fines for being late at clearing, 53. 

kinds of money acceptable in settlement at, 38 

packages of currency, rules for handling of, 39. 
Minneapolis, advertising committee, 22. 

clearing-house bank examination at, 140-144. 

fine for being late at clearing at, 53. 
Money, labeled packages, rules concerning, 39. 
Montreal, Canada, drafts on, 39. 
Morning exchange, at Philadelphia, 224. 
National bank notes, shortcomings of, in panic of 1893, 95. 
National bank statements, tabulation of, at New York, form, 181. 
National clearing house, argument for, 60. 

National currency act, 1859, effect on clearings at New York, 219. 
National loan and clearing houses in 1861, 243. 



326 



Clearing-House Methods 

New England, and Boston clearing house, 259. 

banks, and Suffolk Bank in panic of 1857, 241. 

correspondents of Boston clearing house, 274. 
drafts on Boston clearing house, 46. 
New Haven, Conn., matters cleared at, 50. 
New Orleans, clearing-house loan certificates, of 1873, 83, 89. 
clearing-house loan certificates of 1879, 90. 

of 1893, 100-105. 

of 1893, form of, 102. 

of 1896, 113. 
hours of exchanges, 49. 
manager's checks at, 43. 
matter cleared at, 50. 

settlement of balances at, by option of cash or draft, 45. 
New York clearing house, 148-179. 
and national loan, 243. 

application to clear for another bank, form, 173. 
balances paid in cash at, in fifty -five years, 221. 
bank examiners, clearing house, proposed, 147. 
building company, 157-158. 
clearing-house loan certificates, of i860, 80, 81 

of 1861, 1863, 1864, 82, 83. 

of 1873, 83. 

of 1873, form, 80, 81, 84. 

of 1884, 90. 

of 1890, 91-92. 

of 1891, 92. 

of 1893, 98. 

of 1907, 117-121. 
clearings for fifty-five years at, 217. 
collections, outside, rules for, 185-187. 
consent to clear for another bank, form, 174. 
building, cost of, 159. 
committees, 33, 118, 161-163, 169. 
exchange and currency of, how treated at Boston, 267. 
exchanges through a member, text of resolution authorizing, 172. 

time taken to make, 55. 
exchange slip, form, 193. 
expenses, 211, 213. 

fines, amounts of, collected from 1885 to 1908, 214. 
locations of, 155-159. 
manager's receipt, form, 205. 

national bank statements, tabulation of, form, 181. 
nonmerabers, regulations concerning, 166-178. 
origin, i53-i54- 
proof sheet, form, 201. 

327 



National Monetary Commission 



New York clearing-house — Continued, 
ratio of balances to clearings, 37 
records, kinds kept, 187-189. 
"second ticket," form, 199. 

settling balances, proportion of money and certificates used in, 208. 
settling clerk's receipts, form, 196. 
settling clerk's report of daily balances, form, 203. 
"small ticket," form, 193. 

State bank statements, tabulation of, form, 182. 
trust companies, relationship to, 170-178'. 

form of statement required from, 180. 
weekly averages, statement of, required, from associated banks,form, 184. 

from nonmembers, form, 175. 

from trust companies, form, 176. 
weekly statements of average condition, for associated banks, form, 183. 

for nonmember banks, to face 184, No. 2. 

summary of, for associated banks, to face 1 84, No. i . 
New York State banking law, effect on relation of trust companies to 

clearing house, 177-178. 
New York Stock Exchange, closing of, in 1873, 85. 
Nominating committee, 33, 34. 
at Boston, 257. 
at New York, 163. 
Nonmembers, regulations concerning, 25. 
assessment on, at Boston, 256. 

New York, 212-213. 
bank examiner's operations extended to, at Chicago, 139. 
Boston, 254, 288. 
Chicago, 288-289. 
New York, 166-178, 288. 

application to clear for another bank, form, 173. 

consent to clear for another bank, form, 174. 

resolutions authorizing exchanges through a member bank, 172. 
Philadelphia, 288. 
St. Louis, 300-302. 
weekly statement of average condition of, by New York clearing house, 

form of, to face No. 2, 184. 
weekly statement of averages, made to New York clearing house, form, 

175. 
Notes, deposit of, at Boston clearing house, 254. 
in the settlement of balances at Boston, 241 
Northwestern National Bank, trading of balances by, 285. 
Obligation, delivered by banks at New Orleans in return for loan certifi- 
cates, 103. 
Officers of clearing house, at Philadelphia, 234-236. 
enumerated, 30. 

328 



Clearing-House Methods 

Ohio Bankers' Association No. 2, agreement to provide for protection 
against "runs," 131-135. 
check issued by, form, 130. 
Oklahoma, loan certificates, 1907, 131. 

Order used in transferring balances that have been loaned, Chicago, form, 
287. 

on manager of Chicago clearing house for balance due, form, 293. 
Out-of-town checks, provisions for handling, at Boston, 259, 260. 

See also Checks, country. 
Out-of-town collections, amendment of constitution of New York clearing 

house concerning, 179. 
Out-of-town items, schedules of rates of exchange on, fixed by exchange 
committee, 35. 

See also Collections. 
Outside institutions. See Nonmembers. 
Packages, rules concerning, at Boston, 245. 

of checks in foreign department, at Boston, 265. 
of money, at Chicago, 282, 284. 
at Boston, 244. 
transferred at New York, 202. 
Panic, clearing-house loan certificates as protection in, 12, 21, 116. 
assistance by clearing houses in, 24, 76. 
of 1857, at Boston, 241-242. 
of 1861, at New York, 218, 219. 
of 1873. 83, 85. 

at Boston, 243. 
at Chicago, 277. 
of 1884, at New York, 90. 
of 1893, 95-112. 

at Boston, 112. 
at St. Louis, effect at, 298. 
of 1907, effect at New York, 11 7-1 18. 
at Chicago, 292-294. 
at St. Louis, 298. 

clearing-house loan c^rdficates in, 1 17-136. 
illustrating need of clearing-house bank examiners, 138. 
currency system as cause of, 117. 
attitude of clearing houses in, 135. 
pay checks, issue of, by railroads, 136. 

Ohio Bankers' Association, No. 2, agreement for mutual protec- 
tion in, 131-135- 
Participating certificates, used at New York, 118. 
Pay checks, at Canton, Ohio, 1907, 125-127. 

employers' use of, at Philadelphia, 1907, 124-125. 
use of, by railroads, 1907, 136. 

20040—10 22 329 



National Monetary Commission 

Penalties. See Fines. 

"Personal checks," definition of, 9. 

Philadelphia clearing house, 223-239. 

clearing-house bank examiners installed, 145-146. 

clearing-house loan certificates of, 1873, 83-87. 
of 1890, 94. 
of 1893, 100. 
of 1907, 124-125. 

method of calculating interest on, 1 14. 

daily statement employed by banks of, form, 230. 

due bill issued at, form, 226. 
national loan and, 243. 

ratio of balances to clearings at, 37. 

reports on fraud, 22. 

weekly statement of average condition of banks, to face 230. 

weekly statement required of banks, 228. 
Pittsburg clearing house, arrangement and furniture of, 48. 

clearing-house loan certificates of, 1893, 105. 

committees of, 32. 

.mode of settling balances at, 44. 

ratio of balances to clearings at, 37. 
Portland, Me., clearing house, advertising, 23. 
Portland, Oreg., clearing house, kinds of money acceptable in settlement 

of balances at, 38. 
Post-office, New York, clearings by, 164. • 

St. Louis, clearings by, 299. 
President of clearing house, duties of, 30. 

at Chicago, 295. 

at New York, 159-160. 

at Philadelphia, 235. 

at St. Louis, 301. 
Printing expenses, at Boston, 256. 

at New York, how met, 212, 213. 

at Philadelphia, how apportioned, 233, 

at St. Louis, 301. 
Progressive ledger, use of, in foreign department of Boston clearing house, 

273- 
Proof, method of arriving at, at Chicago, 280. 

at New York, 198. 

at St. Louis, 306. 
" Proof clerk," 195. 

Proof sheet, clearing house, at New York, form, 201. 
Protection, measures for, at Altoona, Pa., 21-22. 

at New York, against insolvency of nonmembers, 167-168. 

at New Orleans, in connection with loan certificates, 105. 



330 



Clearing-House Methods 



Providence, furnishings of clearing house at, 48. 
Rate of collection, in Middle States, 18. 

uniform, clearing houses fix, 2. 
at St. Louis, 298. 
Rates of exchange, schedules adjusted by exchange committee, 35. 
Rates of interest, clearing-house regulations of, on local loans, 14. 

agreements concerning, 25. 

on borrowing balances, at Boston, 251. 

on loan certificates in panic of 1907, 135. 

uniform, 13, 25. 
Ratio of balances to clearings, at Buffalo, 37. 

at Chicago, 37. 

at New York, 37, 220-221. 

at Philadelphia, 37. 

at Pittsburg, 37. 

at St. Louis, 37. 

what it depends on, 37. 
Receipt, forms of. {See Forms, receipts.) 
Reports, forms of. {See Forms, reports.) 

at Philadelphia and New York, 231. 

of clearing-house bank examiners at Chicago, 139-140. 
at Minneapolis, 140-141. 
at St. Louis, 142-143. 
Reclamations for errors and deficiencies, at Boston, 245. 

at New York, 210. • 

See also Errors. 
Records, kept, at New York, 187, 208. 

at Chicago, 294. 

at St. Louis, 308-309. 
Relief, provisions for, in panic, by Ohio Bankers' Association No. 2, 1 31-135. 

See also Protection; Panic. 
Reserves, bank, form of, at New York, in 1907, 117. 

cash, regulations concerning, of nonmembers at New York, 177-178, 
179. 
Resolutions, authorizing clearing-house checks, Chicago, 1907, 1 21-123. 

authorizing clearing-house loan certificates, Boston, 1890, 92-93. 
New Orleans, 1893, 100-103. 
New York, 1907, 118. 
Philadelphia, 1890, 94. 

authorizing exchange through a member bank at New York, 172. 

regarding pay-roll checks, Philadelphia, 124-125. 

relating to nonmembers, New York, 168-178. 
Responsibility, of New York clearing house, 209. 
Restricted indorsements, at Chicago, 290. 

at New York, clearing items with, 211. 



33] 



National Monetary C ommis s io 



n 



Resumption of specie at Boston, 1857, 242. 

effect of, in 1879, on clearings at New York, 219. 

See also Specie payments. 
Richmond, Va., clearing-house loan certificates at, 1893, no. 
Rochester, N. Y., collection charges, 16. 

prohibition against inducing customers to change accounts, 23. 

option of cash or draft, in making settlements, 45. 
Rockford, 111., matters cleared at, 50. 
Routine, daily, of clearing house at Boston, 243. 

at Chicago, 278-284. 

at New York, 190. 

at St. Louis, 302-306. 

suggestions afforded by, in foreign department of Boston, 260. 
"Runners," at Philadelphia, 224. 
Runners' exchange, at Philadelphia, 224-227. 
Saginaw, Mich., option of cash or draft in settlements, 45. 
St. Joseph, Mo., clearing house, committee, 32. 

bank examiners, 144-145. 

rules concerning collection, 19, 20. 
interest, 13. 

persons to whom exchange may be sold, 20, 
premium on exchange, 20. 
St. Louis clearing house, 298-309. 

bank examination at, system of clearing house, 141-143. 

collection charges, 17, 18. 

debit list, 303. 

issue of loan certificates, 1873, 83, 89. 

listing balances at, form used in, 305. 

manager's report of clearings, balances, etc., form, 307. 

ratio of balances to clearings at, 37. 

rules concerning charges for exchange, 20. 
St. Paul clearing house, clearing-house bank examination at, 141. 

matters cleared at, 50. 

money acceptable in settlements at, 38. 
San Francisco clearing house, clearing-house bank examination at, 2)3, i44- 

money acceptable in settlements at, 38. 
Savannah, Ga., clearing house, matters cleared by, 50. 

rates of interest, 14. 
Scotland, banks of, system of clearing of, referred to by Gallatin, 151. 
Scran ton. Pa., clearing house, matters cleared at, 50. 
"Scrip," or clearing-house circulating certificates, use of, at Los Angeles, 

129-131. 
Seattle, Wash., clearing house, discount on Canadian currency at, 23. 
"Second ticket," 195, 199. 



332 



Clearing-House Methods 

Secretary of clearing house, duties of, 31. 
at Boston, 257. 

at Chicago vested in manager, 296. 
at New York, 160. 
at Philadelphia, 235. 
at St. Louis, vested in manager, 301. 
Settlement of balances, clearing houses divided according to methods of, 2. 
definition, 9. 

by cash, recommended, 28. 
by circulating notes, Boston, 1857, 241. 
by currency certificates, 28. 
by manager's check, 43. 
methods of, 37-46. 

with money, 38-41. 
without money, 41-46, 229. 
suggestions for improvement in, 26, 27. 
at Boston, 44, 244, 260-274. 
at Chicago, 44, 281-284. 

at New York, prior to establishment of clearing house, 149-150- 
details of, 202. 
first plan for, 153-154, 
at Philadelphia, 225, 229. 
at Pittsburg, 44. 
at St. Louis, 304-305. 
out of town, by Boston foreign department, 260-274. 
record of money and certificates used in, kept at New York, 208. 
in trading balances at Chicago, 286. 
Settling clerks, rules concerning, at Baltimore, 52. 
at Cincinnati, 52. 
at New York, 191, 195, 198. 
fines for mistakes of, 55. 
methods of, in making exchanges, 52-53. 
receipts, at New York, form, 196. 
reports of, at New York, form, 203. 
statement, at New York, form of, 197. 
at Boston, foreign department, 271. 
at Boston, foreign department, form, 275. 
Settling sheet, at Boston, form, 275. 

See also Settling clerks, statement. 
Sherer, William, manager of New York clearing house, 160. 
Silver, clearing-house certificates, used in settling balances at New York 
208. 

coin, objections to, 39-41. 

use of, in settling balances, at Boston, 244, 



2,33 



National Monetary Commission 

Sioux City Clearing-House Association, maximum rate of interest, 13. 
Sixth National Bank, effect of looting of, on regulations for nonmembers at' - 

New York, 169. 
Slip, foreign and check ticket, of Boston clearing house, form, 266. 
"Small ticket," use of, at New York, 192, 198. 

facsimile of, New York, 193. 
South Bend, Ind., clearing house, telephone method used in clearing at, 53. 
Specie, encouragement to use of, by Boston clearing house, in 1857, 242. 
management of, in exchanges, in early New York banking, 150. 
payments, resumption of, in 1879, effect on clearings at New York, 219. 
suspension of, at New York and Boston, 1857, 241, 243. 
Spring Garden National Bank, and issue of loan certificates in 1890, 94. 
Statements. {See Forms, statements.) 
Stock Exchange clearing house, establishment of, at New York and effect 

on clearings, 220. 
Subtreasuries, 28. 
Subtreasury, United States, membership of, in New York clearing house 

association, 163, 164. ' 
Suffolk Bank and Boston clearing house in panic of 1857, 241. 
Superintendent of banks, California, appointment of, supersedes plan for 

clearing house bank examiners, 147. 
Suspension of members, at Philadelphia, 234. 
power of, at Boston, 257. 

of specie payments, at New York and Boston, 1857, 241, 243. 
Syracuse, N. Y., clearing house, draft used in settlement at, 45. 
Tables: 

balances paid in cash at New York in fifty -five years, 221. 

clearings for fifty-five years at New York, 217. 

fines collected by New York clearing house association from 1885 to 

1908, 214. 
volume of business handled annually by foreign department of Boston 
clearing house, 274. 
Ticket. {See Forms, ticket.) 

Trading of balances. {See Borrowing and loaning of balances.) 
Transfer of balances. {See Borrowing and loaning of balances.) 
Transfers by cable or telegraph, charges for, 20. 
Transmittal, letter of, Boston foreign department, form, 272. 
Treasurer of clearing house, duties of, 31. 

duties of, vested in manager, at Chicago, 296. 

at St. Louis, 301. 
of the United States, certificates issued by for clearing house purposes 
at Philadelphia, 227. 
Trust companies, on requirement of cash reserve by New York clearing 
house, 178. 

statement required of, by New York clearing house association, form 
of, 180. 

334 



Clearing-House Methods 

Trust companies — Continued. 

statement of weekly averages required of, at New York clearing house, 
form, 176. 

relationship to New York clearing house, 170-178. 
"Unacceptable matter" for clearing, 8, 51, 59. 

See also Clearing matter. 
Uncollected checks, receipt for pro rata charge on account of, at Boston 

foreign department, form, 264. 
United States bearer gold certificates, proportion of, used in settling bal- 
ances at New York, 208. 

legal tenders and change, proportion of, used in settling balances at 
New York clearing house, 208. 

order gold certificates, proportion of, used in settling balances at New 
York, 208. 

subtreasury, membership of, in New York clearing house, 163-164. 

use of checks in, more extensive than in any other country, 58. 
Vice-president of clearing house, duties of, 31. 

at Chicago, 295. 

at St. Louis, 301. 
Volume of business handled annually by foreign department of Boston 
clearing house, 274. 

of exchanges at New York clearing house, 217-222. 
at St. Louis, 309. 
Voluntary association, the clearing house a, 152. 
Waco, Tex., clearing house, matters cleared at, 50. 
Washington, D. C, clearing house, matters cleared at, 50. 
Weekly statements. (See Forms, statements.) 

Weekly returns, average, in use by associated banks of Boston, form of, 253 
West Superior, Wis., clearing house, roll call of settling clerks, method at, 53 
Wheeling, W. Va., clearing house, loan certificates without interest, 115. 
Wilmington, Del., clearing house, foreign drafts, used in settlement, 46. 

reports on fraud, 22. 
Wilmington, N. C, clearing house, charges for transfers by wire, 20. 
Withdrawal from membership, conditions of, at Chicago, 291. 
Worcester, Mass., clearing house, settlement by draft, 45. 

rule regarding votes, 35. 
Youngstown, Ohio, clearing house, matters cleared in, 51. 



335 



-fi A/ 70 



^Of/, 



